There's now a 98% chance of a global recession - which signals a severe downturn and more downside risk for stocks, research group says

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Traders watch the price of X Financial, a Chinese technology personal finance company, following the company's IPO on the floor of the New York Stock Exchange (NYSE) in New York, U.S., September 19, 2018.Brendan McDermid/Reuters
  • Ned Davis Research's Global Recession Probability Model is at 98.1%, the group wrote in a recent note.

  • The only other times the indicator reached this level was in 2020 and 2008-2009.

  • Most asset classes have priced in a moderate, but not severe, recession so far, according to the note.

Data suggests the global economy is already in a moderate slowdown but the odds of a severe recession are climbing, and that presents downside risks to equities for the year ahead, according to Ned Davis Research.

In a recent note, analysts from the research firm wrote that their Global Recession Probability Model now stands at 98.1%, which is a severe global recession signal. The only other times the indicator has been this high was during the pandemic downturn of 2020 and in the Great Financial Crisis of 2008-2009.

But even before the geopolitical fallout of Russia's invasion of Ukraine, Ned Davis's Global Recession Probability Model had already climbed into the high-risk zone, marking an early macroeconomic sign for a drawdown in equities later in the year.

severe global recession indicator Ned Davis Research
Ned Davis Research

Indicators are pointing to rising odds of a severe recession sometime in 2023, the group said, but "based on historical norms, a moderate global slowdown has already been priced into most asset classes this year, but a severe global recession has not."

Ned Davis Research pointed out another one of their downturn signals, the OECD Composite Leading Indicator, dropped to 98.7 last month, and has been down for 13 of the past 14 months and remains below its long-term average of 100.

Like the Global Recession Probability Model, the only other times this indicator has been this low was during 2020, 2008-2009, and also in the early 2000s.

When this data is presented alongside cratering investor sentiment — Ned Davis' Sentix Economic Expectations Index is at its lowest level since January 2009 — the global macro picture appears bleak.

Historically, Ned Davis analysts said, when key indicators are flashing like they are currently, those times have been associated with weak global equity market performance.

"However, when it has been in the high-risk zone and falling, that's usually been a sweet spot for global equities, as it's often a sign that the global slowdown is close to ending," Ned Davis Research said. "We don't see any signs of this yet."

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