Image source: Pixabay
Warmer weather means that many animals come out of hibernation. Unfortunately for investors, market bears have also awakened from their slumber.
The recent selloff in U.S. stocks continued this week, with the S&P 500 dropping by nearly 3% on Monday, and nearly an additional percentage point today. With the recent market moves, the stock market has now fallen nearly 10% below its all-time highs.
Recession fears resurface
Trade policy uncertainty has stirred more anxiety around U.S. growth projections. In recent days, there has been a noticeable spike in the amount of "recession" related searches on the internet.
The dreaded R-word
Source: Google trends
Still, our U.S. recession risk dashboard paints a more encouraging picture, especially compared to 2023. We are entering these turbulent times from a starting point of resilience. Against that backdrop, we think the risk of a U.S. recession occurring sometime over the next 12 months is 30%. Although the risk of a recession is still above-average, our base case still calls for the United States to achieve a soft landing. That's likely to be true even if the currently announced tariff measures remain in place for an extended period of time—although U.S. growth could slow modestly in that case.
U.S. recession risk dashboard
(Click on image to enlarge)
Source: Russell Investments, March 2025. Red represents areas of high risk. Orange and yellow represent areas of intermediate risk. Green represents areas of low risk.
Oversold sentiment
The U.S. stock market selloff has resulted in investor sentiment becoming noticeably oversold. Our sentiment indicator now stands at +1.7 standard deviations, reaching levels last seen in December 2022.
(Click on image to enlarge)
Source: Russell Investments, as of March 10, 2025
But historically, U.S. equities have rebounded roughly 11% over the next 12 months once sentiment gets to these levels. And, if sentiment reaches a panic, that return improves to roughly 20%.
Gut check
While stock-market drawdowns might be difficult to stomach, volatility is normal. In the past 60-plus years, markets have seen 9% drawdowns roughly half of the time. But following those drawdowns, investors who stick to their plan are often rewarded with double-digit gains.
(Click on image to enlarge)
Source: U.S. Equity: Russell 3000 Index. as of 12/31/2024. Source: Morningstar. Returns calculated with dividends included. Maximum peak-to-trough represents the return difference between the peak and trough during the calendar year. Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.
If the selloff continues and U.S. equity valuations improve, we may consider potentially adding incremental risk to the portfolios. For now, we continue to believe that staying invested, rather than going to cash, could be the most prudent course of action.
More By This Author:
Why The U.S. Dollar Is Losing Some Of Its Luster
Tariff Uncertainty Rattles Markets
Tariff Tantrum: Are Portfolio Changes Needed?
Disclosure: These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions ...
more
Disclosure: These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.
This material is not an offer, solicitation or recommendation to purchase any security.
Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.
Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional.
Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the "FTSE RUSSELL" brand.
The Russell logo is a trademark and service mark of Russell Investments.
This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an "as is" basis without warranty.
CORP-12737
Disclaimer: Opinions expressed by readers don’t necessarily represent Russell’s views. Links to external web sites may contain information concerning investments other than those offered by Russell Investments, its affiliates or subsidiaries. Neither Russell Investments nor its affiliates are responsible for investment decisions with respect to such investments or for the accuracy or completeness of information about such investments. Descriptions of, references to, or links to products or publications within any linked web site does not imply endorsement of that product or publication by Russell Investments. Any opinions or recommendations expressed are solely those of the independent providers and are not the opinions or recommendations of Russell Investments, which is not responsible for any inaccuracies or errors.
Investing in capital markets involves risk, principal loss is possible. There is no guarantee the stated outcomes in the presentation will be met.
This is a publication of Russell Investments. Nothing in this publication is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The contents in this publication are intended for general information purposes only and should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional concerning your own situation and any specific investment questions you may have.
Russell Investments’ ownership is composed of a majority stake held by funds managed by TA Associates with minority stakes held by funds managed by Reverence Capital Partners and Russell Investments’ management.
Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the “FTSE RUSSELL” brand.
Copyright © Russell Investments Group LLC 2023. All rights reserved.
less
How did you like this article? Let us know so we can better customize your reading experience.
