The ‘cardboard-box’ recession is over. An out-of-the-box financial restoration is coming.

However, there’s no proof that the indicator really works. The AFC’s Kansas City Chiefs received the Super Bowl each this 12 months and in 2023; final 12 months, the Dow gained greater than 13%, whereas the S&P 500
SPX
rose greater than 24%. 

Opening the cardboard-box indicator

Instead of watching enjoyable however statistically insignificant market predictors such because the Super Bowl Indicator (and lots of different wacky ones), there’s one indicator that you could be wish to comply with: the “cardboard-box indicator,” which a lot of stock-market specialists see as useful. 

This attention-grabbing indicator depends on the truth that tons of things are shipped in cardboard bins. Therefore, the extra items that factories ship in cardboard bins, the higher it ought to be for the economic system (as a result of manufacturing is growing). On the opposite hand, if factories ship fewer cardboard bins, it implies that the economic system could also be faltering (as a result of manufacturing is slowing down). 

Jeffrey Kleintop, managing director and chief international funding strategist at Charles Schwab, makes use of the cardboard-box indicator as a clue on the place the inventory market could also be headed. “Things that we make or ship tend to go in cardboard boxes,” Kleintop stated. “I look at demand for corrugated fiberboard, which is what most cardboard boxes are made of. During the last three or four recessions over the last 30 years, demand for cardboard boxes fell by 10 to 15%.”

During the 2008 recession, for instance, cardboard-box producers’ working revenues fell by greater than 50%, together with shipments. Kleintop calls these occasions “cardboard-box recessions.” He stated that in 2023, cardboard-box shipments have been weak as economies within the U.S. and world wide suffered. 

Previously, Kleintop tracked polyethylene (i.e., plastic packaging), however he discovered that cardboard bins have been a lot better at predicting potential recessions.  

What is the cardboard-box indicator saying now?

According to Kleintop, the cardboard-box recession that started final 12 months is coming to an finish. “Demand for corrugated fiberboard on a year-over-year basis has recovered, [after being] down over 10% last year,” Kleintop stated. “These are some of the weakest numbers we’ve seen in a long time. Now, it has come all the way back.” 

How, then, might the U.S. inventory market transfer increased final 12 months even with weak manufacturing numbers? “In 2023, a handful of ‘Magnificent Seven’ stocks that are not manufacturing lifted the market higher,” Kleintop defined. “We had a dichotomy between the seven stocks going higher while the rest of the market wasn’t doing too well.” 

Bottom line: The cardboard-box indicator is telling us that final 12 months’s gentle recession is nearing an finish. Even although the inventory market went up due to the Magnificent Seven, don’t be shocked if a number of of those shares reverse whereas manufacturing shares rally. According to the cardboard-box indicator, that is what’s going to occur.

Where do you discover the cardboard-box indicator? 

The Fiber Box Association publishes cardboard-box information each month on its web site. You may also discover this data by getting into “corrugated fiberboard data” into your search engine. The Federal Reserve additionally tracks what number of cardboard bins are being shipped; actually, many Fed watchers say that former Fed Chair Alan Greenspan tracked the cardboard-box indicator — one of many causes the indicator grew to become well-known.  

How the cardboard-box indicator might help together with your portfolio   

Kleintop stated that “investors should look for a change in [market] leadership as we look to the year ahead. Last year, manufacturing-focused businesses did somewhat poorly, both in terms of earnings and stock prices.” 

“However,” he continued, “the service sector did really well. What I call the ‘Taylor Swift’ economy — travel, summer tours and entertainment — boomed. That seems to be reversing now while manufacturing businesses are picking up momentum.” He added that the industrials, supplies and vitality sectors ought to outperform.

Kleintop famous that different international locations similar to Germany and Japan, that are manufacturing-based economies, are starting to see indicators of outperformance this 12 months. “Japan is actually the best-performing stock market in the world right now,” he stated.

While the Super Bowl Indicator is enjoyable to look at, the cardboard-box indicator really offers us related data. Right now, it seems as if demand for cardboard bins is growing — what Kleintop termed a “cardboard-box recovery.”  This is nice news for the bulls, particularly these invested within the manufacturing sector.

Michael Sincere (michaelsincere.com) is the writer of “Understanding Options,” “Understanding Stocks,” and the forthcoming “Help Your Child Build Wealth” (Wiley, 2024). 

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