Wait is over, but investors still face war's uncertainties

By Rachel Beck
Associated Press

NEW YORK — Getting to war was a big hurdle for investors. Their next challenge is getting through it.

The start of war doesn't wipe away all the potentially stock-sinking uncertainty from Wall Street. Plenty of market-rattling unknowns still abound, most having to do with the potential fallout on American consumers and businesses — and the global economy.

That could mean a bumpy ride for investors at least for the immediate future as they try to sort out what lies ahead.

"The uncertainty that's still out there is less like a veil and more like a curtain," said Tim O'Neill, chief economist at BMO Financial Group in Toronto.

Investors hate uncertainty — and that was abundantly clear for months by their reaction to the threat of war. While tensions mounted, with no resolution seemingly near, stocks slumped through much of the winter.

And then last week, a rally set in once it seemed that war was upon us. Investors cheered the clarity, triggering Wall Street's longest winning streak in nearly three years.

But few investors considered the uncertainties that could emerge once war actually began.

"From our point of view, while the markets have priced in the probability of war, they still expect the fighting to be short and successful," said Burt Hilton, head of U.S. equity derivatives at Citigroup Private Bank.

"Investors haven't yet discounted the negative scenario for the conduct of the war itself."

Consider what we don't know: What will it cost? How long will it last? Who pays for rebuilding Iraq?

And while most economists say the war won't damage the economy, it could exacerbate many of the problems weighing on the sluggish recovery.

In the buildup to war, consumer confidence plunged and retail sales began to slow. Corporate executives further reduced their spending, which has been weak through most of the economic downturn in the past three years.

Now with war here, questions loom over how it will affect the psyche of businesses and consumers — especially if it's a prolonged battle.

"We ... hope investors understand that reduced expectations and negative momentum in the economy may not be reversed instantly if the war is resolved quickly," said Steven Wieting, senior U.S. economist at Salomon Smith Barney.

The wait for war is over. The reality of war begins.