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November 06, 2023

Commentary: NCM Core Global and NCM Core International

On November 6, 2023, portfolio manager Phil D’Iorio, CFA updated investors on why the US has not seen a recession, as well as his 2024 outlook for equity markets in the US, China, Europe and Japan.


Good afternoon. My name is Phil D’Iorio and I'm the lead portfolio manager for the NCM Core Global and Core International portfolios. Today, I'm going to give an update on what's happening across global markets and also provide an update on our views for 2024.

So just starting off with our views here, we'll begin with the US and by this point now, according to all of the previews that we had at the beginning of 2023, we're supposed to be in a recession, but the economy has been very resilient and just wanted to talk about some of the reasons why the US has not gone into a recession.

A lot of it has to do with the labour market. The government is also playing a role. And then there's also US reshoring. And taken together, these three factors have been able to more than offset some of the concerns and some of the main reasons why a lot of strategists thought we'd be in a recession by now and that would include the depletion of pandemic related savings and all this stuff that we hear about regards to inflation.

So moving on to the next slide, going to talk a little bit about the US consumer. The US consumer is one of the reasons why the economy has remained resilient. As you can see here in this chart, US unemployment rates are close to 50 year lows, so consumers have jobs. That's allowing them to earn money and to continue spending money.

On the next slide. There's an illustration here of what's happened with the consumer savings that were built up during the pandemic. And this is one of the big bear arguments as to why we should be in a recession, because for 80% of the households at the bottom of the pyramid, those pandemic savings have completely run out, as this chart shows.

And this comes directly from the Federal Reserve. So at first glance, this seems like a pretty negative development, but there's more to it than just savings. I think we should also talk about the net worth of Americans, which on the next chart we can show that the net worth of the bottom 50% of US consumers has actually increased by 75% since the beginning of 2020. And that's a staggering amount in such a short period.

Moving on to the next slide, we can show that it's not even just the bottom 50%. It's all Americans that have seen a pretty nice boost to their overall net worth. At the far right hand side here you can see that on average, all households in the US have seen a 33% boost to their networks.

Why has that happened? Well, on the next slide, we can talk a little bit about real estate, because the value of residential real estate in the US has gone up about 50% since early 2020. So that's played a big role in the increase in net worth. And it's not just that the value has gone up, but you can see on the next slide that the equity that Americans have in their homes has also gone up, and it currently sits at about 70%, which is near the highs of the last 50 years. So overall, the consumer is in decent shape.

So moving on to the next slide, let's talk a little bit about the government, because the government has also contributed to this resiliency that we're seeing in the US economy. And there's a few different things going on here. They've announced a number of programs, including the Infrastructure Investment and Jobs Act, the IRA, or the Inflation Reduction Act, the CHIPS Act. All of these government measures and stimulus measures have been providing a boost to the US economy.

On top of that, you have this trend of US reshoring, and what's happening there is that you have a number of big blue chip American companies that have global footprints platforms all over Europe and in Asia and they found out in a negative way during COVID that having a lot of their supply chains overseas was not such a good idea.

And so in recent years, they've been bringing these supply chains back to America. Geopolitics also play a big role given what happened in Russia and Ukraine. And more recently, we're seeing other things happen. You've got the ongoing tensions with China and the US. So big corporates are bringing back their manufacturing to the US. On the next slide you can actually see what the result of this is.

Spending on manufacturing construction has surged. In fact, in the last couple of years, the amount has doubled in the United States on the back of some of these government programs that are being announced and some of the reshoring that's taking place.

What I find interesting is I was listening to a conference call of one of our holdings last week, Eaton Corp. They had a great quarter, but what they were talking about were these mega projects that are beginning to really take hold because of all of this stuff that we're talking about that the U.S. government has done. And they were saying that only 25% of the mega projects have started. And so they see a multi-year runway of all of this spending to continue.

So the US has been resilient, consumer’s in decent shape, government’s contributing, big corporates are contributing. It doesn't guarantee that we avoid a recession. But right now the US looks good. So let's move on to the global markets outside of the US. We'll just touch really briefly on Europe, China and Japan.

You know, Europe, economy’s in contraction there, they're dealing with a bunch of different things, higher energy costs, elevated borrowing costs from all the interest rate increases. Their export markets are weak because of China. So Europe's sort of in the doldrums right now.

China, they've got issues going on in their property sector. It's been happening for quite some time now. The government's been implementing measures to try and stabilize things. More recently, we got some good news. In September, manufacturing rose for the first time into positive territory for the first time in six months. So kind of hoping that the economy there is in a bottoming process.

Finally, Japan, you know, the economy in Japan, it's always been low growth, but it's doing all right. Outside the economy, the companies there have done a lot of heavy lifting in terms of improving corporate governance. And lo and behold, the stock market is rewarding them for doing so on a year to date basis through to the end of the third quarter.

Japan is actually the best performing stock market among the four areas that we're talking about here today, including the US, Europe and China. We've taken note of what's been happening in Japan. We've added three new companies to some of our mandates and we see other opportunities that we're exploring there. So some interesting things going on in Japan.

So just moving on here to the rest, you know, we're getting close to the end of the year. Looking forward to next year. Just want to talk about some of the risks. Geopolitics would be at the top of the pile here, given everything that's going on. Ukraine, Russia is still happening. China and the US ongoing tensions there. Everyone knows about the attacks in Israel. Here at home, Canada and India seem to have a little bit of tension going on. It's always hard to quantify the risk. You know, it's not easy to know how things are going to unfold, but that's why we're sort of monitoring it and just keeping abreast of what's going on there.

Inflation’s the other thing, it's been moving in the right way for the last several months, but I guess with the US remaining resilient, potential for a recovery in China and in Europe, and the recent strength in the energy markets, there is a potential that inflation could accelerate next year. So we're just keeping our eyes on that.

And then just to wrap up what we've talked about today, the US is in good shape. Europe and China are weak, but I don't think they're getting worse. And, you know, there's good chance that they could start to recover and come out on the other side. All of that would probably lead to a soft landing for the global economy next year. It's certainly looking more likely that that happens than what people were thinking 3 to 6 months ago. And our funds are positioned for that outcome. Thank you for your time today.


Phil D’Iorio is a Portfolio Manager, with Cumberland Investment Counsel Inc.(CIC). CIC is the sub-advisor to its affiliate, NCM Asset Management Ltd. The information in this video is current as of November 6, 2023 but is subject to change. The contents of this video (including facts, opinions, descriptions of or references to, products or securities) are for informational purposes only and are not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. The communication may contain forward-looking statements which are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.



Phil D'Iorio, MBA, CFA

I search around the globe for best-of-breed companies trading at attractive valuations. And I spend a significant amount of time thinking about portfolio construction to ensure that the portfolio is optimized to reflect where we are in the cycle.