By definition: A recession is a period of poor economic performance across the market, lasting several months (thanks Investopedia).

So far, US economic activity is still ripping — even if the stock market isn’t. So it’s not a recession yet. But here’s what you’re probably wondering: Can the stock market go down even more?

Bringing bad news…

The market has been a bloodbath with ~43% of the stocks in the tech-heavy NASDAQ down 50% — and into March, the energy sector is still the only positive sector in 2022.

Geopolitics is driving the market — ignoring fundamentals — and investors face a lot of uncertainty ahead:

• War has led to global instability and rampant inflation.
• The Fed is expected to increase interest rates next week.

All eyes will be on the Fed meeting next week. Per Goldman, the NASDAQ could fall another 17% if the Fed forcefully tightens monetary policy to calm inflation (via FT).

The good news: Fundamentals remain strong — the US reporting a surprising 678K new jobs last month. Despite three wall street strategists lowering their 2022 S&P 500 targets last week, economists still see the US growing in 2022 — just at a slower pace.

It all goes back to oil…

History tells us the economy enters a recession if oil prices increase 100% over a year — like in 1990, 2000 and 2008 (via Barrons). Before yesterday’s pullback in oil price, we were nearly there.

• But coincidentally, the dot-com burst and financial crisis were also in 2000 and 2008 — so it’s uncertain how much oil played a part.
• Rising oil prices pressures household spending, impacts travel plans and raises businesses costs.

US retail gas usage is trending higher as more people return to the office. On the flip side, more consumers working from home could help mitigate an oil tax. Oil stocks have become a protection against the current environment:

• In recent weeks, Warren Buffett added to its Chevron (NYSE:CVX) and Occidental Petroleum (NYSE:OXY) investments.
• The optimists: JPMorgan thinks the markets will hold up even with oil prices trading at $130-150.

Investors: Hope for the best, prepare for the worst

Per Bloomberg, markets are constantly overreacting to panic taking over investor psychology. Just as markets ran up beyond fundamentals in 2021, they can easily fall below fundamentals as well.

While signs point to a recession — here’s how investors can cope: Look at prices less, diversify, phase in your purchases over time and make sure to buy high-quality companies at fair prices.