The underlying fragility of the U.S. economy combined with the looming conflict with Iraq will make for a very uncertain equity market in 2003, according to Jeff Rubin, CIBC’s chief economist.

“The U.S. economy is still struggling despite having the benefit of 41-year low interest rates and one of the largest tax cuts in U.S. history,” said Rubin in a news release

“The only sectors where consumers are showing strength are where they are being paid to consume,” he said.

Rubin pointed out that car sales are soaring but only because consumers can capitalize on 0% financing from car producers. The housing market continues to thrive, thanks to record setting low interest rates. “But venture outside of the ‘no carry’ economy and spending is as flat as a pancake,” said Rubin.

This fact doesn’t appear to have yet sunk into an equity market that clearly wants to rally around U.S. President George Bush’s newly released fiscal stimulus package, added Rubin. “While the stock market can rightfully cheer about the elimination of federal taxation on dividends, the real contribution of the Bush package to sustaining any rally will be through its impact on the economy. And on that score, it pales in comparison to the 2001 initiative.”

Rubin said that despite the $674 billion multi-year commitment outlined by Bush, the package is likely to provide no more than half the near-term economic impact support that the fiscal policy offered in 2002. And, the package is unlikely to gain any traction with the economy until the second half of the year.

“The Bush fiscal stimulus package still leaves the near-term heavy-lifting with the U.S. Federal Reserve Board. By the time taxpayers actually reap any savings, the funds rate will be below 1%,” Rubin said.