Investors are keeping a wary eye on oil after weekend attacks on Saudi Arabia crude facilities triggered the largest one-day gain for the commodity since 2008, and plenty of risk-off action all over.

The cautious tone looks here to stay as attention turns to the two-day Federal Reserve meeting starting on Tuesday.

Some are doubting we'll even see that much anticipated interest-rate cut (see chart of the day).

Not that it matters, says our call of the day, from Binky Chadha, Deutsche Bank's chief global strategist and head of asset allocation, in an interview with MarketWatch.

He warns a U.S. recession is on the doorstep, the Fed can't help and the S&P 500 SPX, +0.26% is ignoring all of the warning signs.

"We are cautious on stocks. We would argue you want to be defensively positioned [and] we would argue that the U.S. equity market has run way, way ahead of growth," says Chadha.

The S&P, he notes, tends to be "very strongly correlated" with indicators of cyclical growth like the Institute for Supply Management survey (ISM), which fell into contraction territory last month. It suggests the index should be at 2,600, not at current levels just below 3,000, which appear to price in a "good solid rebound" for the ISM.

Elsewhere, he says annual U.S. jobs growth slowed from 2.5% in the middle of last year to 1.3% last month, marking the weakest expansion in 10 years, and nearing "stall-speed" for the economy.

"Every time payrolls growth has gone below 1%, the U.S. has ended up in recession. We would argue the U.S. economy is dangerously close to...tipping into recession," he said, adding that the fate of the economy hinges on one thing - the trade war.

He said a market sell off would make President Trump more likely to relent on trade policy.

"I would argue that's a necessary condition for growth to bottom and rebound and or the stock market to go up in a sustainable way," he says.

If that doesn't happen, Chadha says he will kiss goodbye his own "very bullish" year-end S&P forecast of 3,250.

The market

Oil CLV19, -0.59% is reversing some of Monday's historic gains, as another weak day builds for stocks, with Dow YM00, -0.08%, S&P ES00, -0.08% and NasdaqNQ00, -0.10% futures all down. Gold GCZ19, -0.24% is lower, while the dollarDXY, +0.03% is flat.

European stocks SXXP, -0.05% are struggling, while Asia markets ADOW, -0.36%got hit by Saudi-related tensions.

The economy

Industrial production and capacity utilization data, followed by a home builders' index, are on tap, along with the start of the Fed's two-day meeting (see preview).

The chart

Here's one question making the rounds: Could the Fed not cut interest rates this week? The CME FedWatch Tool, based on the Fed Funds futures, shows a 33% chance of no change, versus last week's 8% possibility.

Another way to gauge the possibility is via eurodollar futures ED00, -0.01% , which settle at a three-month rate that tends to be in step with Fed's target rate.

Here's a one-month eurodollar chart US:EDU19 and our chart the day. The higher those futures rise, the lower the implied Fed rate and it's been going down -- suggesting there are at least a few bets the central bank could surprise Wednesday.

Source: MarketWatch