Market risks come in three flavors: recession risk, economic shock risk and risks within the market itself. So, what do these risks look like for March? Let’s take a closer look at the numbers.

Recession Risk

Recessions are strongly associated with market drawdowns. Indeed, 8 of 10 bear markets have occurred during recessions. As I discussed in this month’s Economic Risk Factor Update, right now the conditions that historically have signaled a potential recession are not in place. There are signs of weakness, with consumer confidence going to yellow. But on an absolute basis, all the major signals are solid—with strong job growth, healthy levels of consumer confidence, and expansionary business confidence. As such, economic factors remain at a green light.

Economic Shock Risk

There are two major systemic factors—the price of oil and the price of money (better known as interest rates)—that drive the economy and the financial markets, and they have a proven ability to derail them. Both have been causal factors in previous bear markets and warrant close attention.

The price of oil. Typically, oil prices cause disruption when they spike. This is a warning sign of both a recession and a bear market.

A quick price spike like we saw in both 2017 and 2018 is not necessarily an indicator of trouble, especially as the subsequent declines took this indicator well out of the trouble zone. With the recent drop in oil prices, they are actually down over the past year, suggesting no risk from this factor. Therefore, the indicator remains at a green light.

Signal: Green light

The price of money. I cover interest rates in the economic update, but they warrant a look here as well.

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