After sliding nearly 6% so far this year, the S&P 500 (^GSPC +0.74%) could be in for more trouble. Moody’s AI-driven recession model just put the odds of a U.S. downturn at 49%. The model was trained on 80 years of backtested data, and every time the odds have tipped above 50%, a recession hit within 12 months.
The Iran War could push Moody’s AI recession model over the edge
Here’s what makes this especially concerning for investors: That 49% figure is based on February data, meaning it doesn’t account for the U.S.-Iran War — a war that has knocked out roughly 20% of global crude oil production, pushing oil prices well above $100 a barrel.
Image source: Getty Images.
The 49% reflects an already soft economy. The U.S. shed 92,000 jobs last month, well below the 59,000 gain economists expected. Gross domestic product (GDP) was revised down from 1.4% to 0.7%, while inflation is still running above the Federal Reserve’s target.
Now, with a conflict-driven oil shock, the odds are very good that Moody’s model will soon tip above the 50% threshold. After all, every U.S. recession since World War II, aside from the one due to COVID-19, was preceded by a spike in oil prices.
The bottom line
Not everyone agrees, of course. Analysts at Goldman Sachs see only a 30% chance of recession, and plenty of analysts on Wall Street are still bullish.
I think they are overly optimistic. I think there is a very good chance of a recession within the next year. If that happens, markets will suffer.
But that doesn’t mean I’m advocating panic selling — that’s never a good idea. While playing things more conservatively right now is the way to go in my opinion, staying invested has always been the winning formula.
Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Moody’s. The Motley Fool has a disclosure policy.