The probability of a US recession soars to 40%, with rising oil prices and escalating geopolitical risks

March 9 News: As oil prices break above $100 per barrel and the conflict between the US, Israel, and Iran continues to escalate, market forecasts for a US recession in 2026 have significantly increased. Polymarket shows about a 40% chance of a recession by the end of the year, while Kalshi places the risk at 36%, reflecting a market re-pricing of economic outlooks.

Recently, the US labor market has shown signs of weakness. Data from the Bureau of Labor Statistics indicate that non-farm payrolls decreased by 92,000 in February, and the unemployment rate rose to 4.4%, marking the third employment decline in five months. Market analyst Henrik Zeberg pointed out that his business cycle model’s synchronized indicators have issued a “recession imminent” warning, suggesting short-term economic pressure.

Tensions in the energy market further increase economic uncertainty. Reduced production by major Middle Eastern oil producers, the closure of the Strait of Hormuz, and ongoing conflict concerns have driven oil prices higher. Economist Peter Schiff stated that rising oil prices alone won’t directly cause inflation but will exert downward pressure on economic growth.

The private credit market is also under stress. BlackRock has limited redemptions for its $26 billion private credit fund, and Blue Owl Capital has suspended quarterly redemptions, switching to periodic payments linked to asset sales. Meanwhile, hedge activity has surged, with four major US credit ETFs recording a record 11.5 million put options contracts this month. The one-month put/call skew for the S&P 500 has risen to 0.53, the highest level since the 2022 bear market.

Weak employment, volatile macroeconomic indicators, and mounting market pressures pose significant challenges for policymakers. As forecast markets continue to adjust the probability of a recession, the coming months will test whether these early warning signals will translate into actual economic contraction, with important implications for investors and market strategies.