Uncertainty is never good for investors

Uncertainty is never good for investors, and on Wednesday they were spinning in confusion over whether the U.S. Federal Reserve can possibly raise interest rates with the U.S. economy looking increasingly fragile.The Dow Jones industrial average closed at 12,083.77, down 205.99 points, or 1.7 per cent.

The broader S&P 500 closed at 1335.49, down 22.95, or 1.7 per cent.The Fed released its so-called Beige Book of economic conditions in the afternoon, which outlined for anyone who didn't know it already that the U.S. economy isn't exactly humming."The opening paragraph used descriptives such as softer, weaker, lower, slower, sluggish, modest, stable, little changed to describe activity in the Fed Districts," said Jennifer Lee, an economist at BMO Nesbitt Burns, in a note to clients.

"You know activity is slumping when the most positive word mustered up is 'modest,' or 'stable,' or 'little changed.'"Bond markets are already beginning to price in a rate hike by the Fed, just days after Ben Bernanke, the Fed's Chairman, reiterated his commitment to keep inflation in focus. The yield on the two-year Treasury note is closing in on 3 per cent, close to a high for the year.Meanwhile, crude oil prices rebounded after two days of softer prices, creating yet more havoc for companies and consumers who are already finding the spike in energy costs hard to absorb.

During the day, oil climbed as high as $138.30 (U.S.) a barrel, coming within pennies of its record high last week. It closed in New York at $136.38, up $5.07.By comparison with U.S. markets, the S&P/TSX composite index got off with a light warning on Wednesday, thanks to its greater exposure to commodity producers: It closed at 14,716.52, down 19.68 points, or 0.1 per cent.

The financial sub-index fell 1.7 per cent, but most of the losses were offset by the energy sub-index, which rose 1.6 per cent.Copyright 2001 The Globe and Mail