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December 06, 2022

Commentary: NCM Core Global & NCM Core International

On December 6, 2022, Portfolio Manager Phil D’Iorio shared his perspectives on inflation and the Federal Reserve, and why he’s optimistic heading into 2023.


Hi everyone. My name is Phil D’Iorio and I manage the NCM Core Global and Core International funds. Today is December 6th and I'm going to talk to you about inflation because we've had a lot of inflation readings over the last month, and I just wanted to give my thoughts and what it means to the Fed and what it means for the markets.

So it all kind of started back on November 10th when we had a consumer price index reading of 7.7%, which was a little bit better than what the market had expected at 7.9%. And the markets had a huge rally on the back of this number. The S&P 500 was up 5.5%. And I think the reaction was so strong because it finally appeared that there was potentially some light at the end of the tunnel after having really bad inflation numbers for most of the year up until that point.

So a few weeks after that, the FOMC minutes, these are the minutes from the Federal Reserve in the US, suggested that smaller rate increases were likely happening soon. And sure enough, about a week after that, Jerome Powell, the Fed chair, confirmed that by saying that slower rate increases could be happening as soon as December.

And so the markets kept moving up on the back of all of these announcements until Friday, December 2nd, when there were some jobs numbers that were higher than expected. And the average hourly wage number was 0.6%, which was double what the consensus estimate had expected. So last Friday, on the back of these numbers, the markets went down pretty significantly and then rallied back closer to flat by the end of the day. And I guess the market digested all of these numbers over the weekend. And here we are sitting today in the markets off to a very weak start for this week.

And so, you know, I'd like to just offer some thoughts on how I think about this and what it might mean for the Fed looking ahead and for the markets. And first and foremost, I do think that we have reached the peak inflation rate. I think that in the months ahead, we're going to find that inflation will moderate.

And I say that for a few different reasons. There's a lot of different indicators that you look at commodities in a lot of different areas have come down and oil being sort of a big one, down almost 35% from its peak earlier this year. Housing, which is pretty important, sales, pending sales, rents have all started declining. So I think that bodes well.

And then finally, there's been a lot of news lately about China and the reopening of its economy, which ultimately I believe will do good things for supply chains and logistics, which have been really tied up this year on the back of lockdowns. And as we all know, China's a very important exporter going out to the rest of the world.

So for all those reasons and others, I do believe that inflation is going to start to moderate. That doesn't mean that the Fed doesn't have more work to do. They're going to be meeting in the near future in December, probably increasing rates another 50 basis points, and they probably have more work to do in the new year.

And so the real question for the markets is whether they can engineer, whether the Fed can engineer a soft landing for the economy and avoid a recession. And nobody really knows. You know, they have this target of getting inflation down to 2%. Can they get there by increasing rates before we hit a recession? That's the question that everyone wants to know and we don't really know the answer to that. You will only know after the fact.

So in terms of what we're doing, in light of that uncertainty, we're very comforted by the fact that we own high quality companies - specifically in the Core Global, Core International - companies we own generate a lot of free cash across the cycle, whether we're in a recession or not. They're very strong balance sheets and they have management teams that have navigated challenging environments and recessionary periods in the past.

So if we do end up going into recession, we're very confident that our companies will come out on the other side even stronger. And it's during these tougher times and recessionary periods where our companies can go in and gain market share from weakened competitors that are not as well positioned to withstand the challenging environments. So that's why we have an optimistic outlook as we look ahead to next year.

Thank you very much for your time.


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 December 6, 2022 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 involved inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. All opinions in forward-looking statements are subject to change without notice and are provided in good faith. 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.