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Our Forecast Trader participants price out a 41% chance that the US economy will enter a technical recession by the end of 2026, defined as two consecutive quarters of declining real gross domestic product on an annualized, seasonally adjusted, quarter-over-quarter basis. But a cheaper way to hedge an economic downturn would be to purchase “Yes” contracts on December 2026 US unemployment at the 4.7% and 5.2% levels, which cost just $0.09 and $0.02, respectively, and are significantly undervalued in my opinion. The reason that recession and unemployment contracts go hand in hand is because when looking back at history, joblessness has always increased when recession hits (see chart below). Furthermore, unemployment is one of the criteria used by the National Bureau of Economic Research for calling a recession. Other factors include the following:
- Real personal income less transfers
- Nonfarm payroll employment
- Real personal consumption expenditures
- Manufacturing and trade sales adjusted for price changes
In consideration of a current unemployment rate of 4.6%, it’s heavily likely to rise above 4.7% if recession hits next year. 5.2% is a different story, but that’s also a cheap hedge that is available for just $0.02.
Source for images: ForecastEx
Note: Prices are highest bids as of the morning of Dec. 29, 2025.
Related: The Shockwave Setup: Why Bad Economic News Is Fueling a Bull Run in Stocks and Bonds