Mid-Year Outlook: Global Stocks and Economy

The drama characterizing the first half of 2023 may abate, with potentially milder returns for investors due to the effects of the Cardboard Box Recession.

Global stocks' double-digit gains may make it easy to forget the drama in the first half of 2023 that included spy balloons, failed banks, hiked interest rates, and a debt ceiling showdown. The second half may see less drama, but milder returns for investors as the Cardboard Box Recession broadens. We will sum up what we learned in the first half and what we believe the second half of the year may hold for investors.

The Cardboard Box Recession

During the typical global recession, all areas of the economy (like manufacturing, services, retail, construction, and trade) tend to turn down around the same time. Yet, over much of the past year, only manufacturing and trade seem to be in a global recession, according to indicators such as industrial production, worldwide trade volumes, job growth by industry, surveys of purchasing managers at manufacturing companies, and many others.

We're referring to this phenomenon as a Cardboard Box Recession because items that are made (manufacturing) and shipped (trade) tend to go in a box. Demand for corrugated liner board, what most cardboard boxes are made from, has fallen similar to past recessions, as per data from the Fibre Box Association. The latest drop is reminiscent of the price behavior during those shaded periods on the chart below denoting global recessions. Note that while the drop in 2012 on the chart isn't matched with a global recession, both Europe and Japan did suffer recessions at that time, softening global demand for boxes.

Cardboard Box Recession

In contrast, services industries, which make up the largest share of output among developed economies, have continued to grow. The global services Purchasing Managers' Index (PMI) remains well above 50–the threshold between contraction and growth. As consumers have turned to shop for experiences over goods, travel, and entertainment remain in high demand. As an example, the airline industry's main organization, the International Air Transport Association, said on June 5th that it is doubling its estimate for global net profit in 2023 on the surge in flying in North America and Europe.