The 4th quarter started with a sideways trend, but the US markets spiked immediately after the re-election of President Trump. In contrast, the International and Emerging markets went the other direction. This diversion narrowed slightly as the positive momentum in the US subsided and gave way to profit-taking, giving the market a negative December. With all those gyrations in the year's final quarter, the S&P 500 finished the quarter well ahead of the international markets and slightly better than the Mid-cap and small-cap indices. Investors’ optimism about the economic recovery continued to weaken as fear of slower-than-expected interest rate decreases came to the forefront of most analyst’s projections. The S&P 600 Small Cap index and the S&P 400 Mid Cap Index ended the quarter with weak returns of -0.59% and 0.33%, respectively, while the S&P 500 index posted a respectable 2.39% return, and the International Index posted a loss of -7.10%.

Over the past 12 months, the stock market witnessed a generally positive trajectory across all the major equity indexes. The S&P 500 experienced strong growth during this period, turning in a one-year number of 25.00%. Similarly, the S&P 400 and S&P 600, representing mid-cap and small-cap companies, also enjoyed overall gains. The S&P 400 Mid-Cap index posted a one-year return of 13.89%, outpacing the S&P 600 Small Cap index, which returned only 8.65% during the same time frame. These indexes benefited from the broader market rally, driven by optimism about economic recovery and hope that if a recession actually came in 2024, it would be a relatively “soft landing.” As for the S&P International 700 index, it followed a similar pattern with variations influenced by regional economic factors and geopolitical events and fell short of the US Large Cap market and performed behind the US Mid Cap market with an anemic 12-month return of only 6.60%. Overall, the past 12 months exhibited positive market sentiment even in the face of continued headwinds of inflation numbers not falling as fast as the markets previously had hoped. Even though we are in the first innings of the new bull market and markets will probably still move higher over the next 12 to 24 months, there is a high probability that we could see some profit taking, which could give us a 10%+ correction during the next few months. If that happens, we recommend investors remain invested and stay focused on the long-term opportunities in a well-diversified global portfolio.

(Source: Bloomberg)

Inflation came in at 0.20% (Month over Month) in October, meeting the expectations of a 0.20% increase. The estimate for the month-over-month number in November was for an increase of 0.30% and met expectations when it was released on December 11^th. The expectation for December was for a month-over-month increase of 0.40%, and it came in on target at 0.40% when it was released on January 15^th. This increase may signal to the Federal Reserve that additional interest rate cuts are still necessary in the coming months. Hopefully, we will not see the month-over-month numbers continue to climb as we need to see month-over-month numbers stay in the 0.0% to 0.20% territory for the next several months so that the CPI year-over-year number can come back towards the 2 to 2.5% level over the next 12 months.

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(Source: Bloomberg) (A= Advance; S= Second: T= Third)

GDP growth came in stronger than the initial expectation of +2.9% for the 3^rd Quarter, with an actual  +2.8% growth rate for the quarter in the Advance Release. The expectation was revised to 2.8% for the Second release and met that expectation by coming in at 2.8%. The Third revision raised the expectation slightly to 2.9%, and the actual print came in stronger than expected from the previous release at 3.1%. The debate among economists and market pundits during the past quarter has been focused on whether the Fed will have to pause its plan to lower interest rates to avoid a recession due to stronger-than-expected GDP numbers and inflation that is stickier than expected.  

The yield curve finally reversed its inversion, marking the most consecutive days of inversion going back to the 1920s. Recessions are usually declared after an inversion corrects.

(Source: Bloomberg)

The Unemployment rate remained steady at 4.1% in October before rising to 4.2% in November. In December, we saw the unemployment rate fall back to 4.1%, beating expectations of staying at 4.2%. Although we are still above the 4% level, it is possible we could see the unemployment rate continue its upward path in 2025 if the economy slows and layoffs increase. 

Nonfarm Payrolls had an extremely disappointing showing, with October coming in at a dismal 12k new jobs, which was well below the estimate of only 106k. The new job numbers rebounded in November and December, and both months beat expectations. If the job growth continues to remain strong as we start the new year, while inflation remains above target the Federal Reserve will not be inclined to cut interest rates as aggressively as some analysts were predicting and there is a possibility that there will not be any additional interest rate cuts until mid-2025.

(Source: Bloomberg)

The Federal Open Market Committee finally cut the Federal Funds rates again by 25 basis points in each of their final two meetings of 2024. Based on Chair Powell’s recent comments, we should not be surprised if the pace of rate cuts coming from the FOMC will be slower than most have been expecting for 2025, as he has reiterated several times that they will remain data-driven and the data is showing a slowing but resilient economy. Although many analysts fully expect the rate cut cycle to continue in 2025, a few economists are saying there will be no interest rate cuts in 2025 if inflation starts to rise, and there may even be a rate increase in the coming year. The current expectation is for the terminal rate to be in the 3.5% range by mid-2026 due to ongoing inflationary concerns.

• BLES underperformed the S&P Global 1200 index during the 4^th quarter with a return of -5.99% vs -0.56% for the global index. 
• With weak performance in the international markets in relation to the US large-cap market during the 3^rd quarter, BLES diverged from the global index for the quarter in a more negative way.
• It appears that the underperformance of BLES to the global index is due to underperformance in the North American region, which is directly attributable to the strong performance of the Mag 7 stocks in the S&P 500 at the end of the quarter.  
• We believe that the tilt to the smaller end of the large-cap spectrum of BLES will start to come back into favor as the economic numbers improve over the next 6 to 12 months. 

(Source: Bloomberg)

Past performance is no guarantee of future results. The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. For performance data current to the most recent month end, please call 877.658.9473.

• FDLS performed in line with the MSCI All Country World Index for the 4^th quarter with a slight outperformance with returns of -0.50% and -0.94%, respectively.  Although FDLS rallied strongly in November, it finished in line with the global market by the end of the quarter.
• FDLS underperformed the S&P 500 by 289 basis points (-0.50% vs. 2.39%) as the global exposure to different stocks in relation to the market cap-weighted S&P 500 was the main contributor to this underperformance for the 4^th quarter.
• We continue to believe that the globally diversified allocation of FDLS to US large, mid, and small-cap, international, and emerging markets stocks, as well as the disciplined multi-factor approach, will be a good complement to our other ETFs as the bull market continues its upward momentum over the next 12 to 24 months.

(Source: Bloomberg)

Past performance is no guarantee of future results. The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. For performance data current to the most recent month end, please call 877.658.9473.

• GLRY reversed the upward ‘momentum’ trend that we have witnessed in the past year from when the rally started in the 4^th quarter of 2023. We saw the broad markets pull back in the 4^th quarter with GLRY underperforming the S&P 400 Midcap index in Q4 with a return of -1.69% vs the index that ended the quarter up 0.33%.
• The 3^rd quarter was a rollercoaster ride for investors as the rally in momentum stocks started to lose some steam vs. the broader market with some understandable profit-taking right after Thanksgiving and through the end of 2024. 
• Although the momentum factor is starting to fall out of favor, the methodology has not changed, and we will continue looking for great companies using quality, value, and momentum factors. We will find companies that have strong financial health and sustainable earnings, which lets them make strategic decisions in a similar or a lower-rate environment.  We will find companies that have attractive valuations and price momentum, which assists with entry and exit points. 

 (source: Bloomberg)

Past performance is no guarantee of future results. The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. For performance data current to the most recent month end, please call 877.658.9473.

• ISMD performed in line with both the S&P Small Cap 600 index and the S&P Midcap 400 Index for the 4^th quarter with a slight underperformance of -0.71% vs the small-cap index at -0.59% and the mid-cap index up only 0.33%.
• The US mid-cap and small-cap market have given back their leadership as their momentum waned from what we saw in the 3^rd quarter.
• The equal weighting of the 500 stocks in ISMD performed in line with the blend of the market cap-weighted small and midcap indexes showing that the correlation in the small and midcap markets and ISMD remains strong.
• We believe that the rotation to the broader market will continue in 2025, and this should benefit ISMD as the US large-cap and mega-cap markets appear to be overbought at these levels.

(Source: Bloomberg)

Past performance is no guarantee of future results. The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. For performance data current to the most recent month end, please call 877.658.9473.

• In the third full quarter of our newest ETF, PTL underperformed the S&P 500 Index by 216 basis points with returns of 0.23% and 2.39%, respectively.  
• The underperformance of PTL to the S&P 500 index is due to weaker performance in the broader large cap market vs. the Mega Cap Growth stocks commonly referred to as Mag 7.
• The exposure to smaller large-cap companies in PTL as the mega-cap growth stocks in the Communications Services and Technology sectors of the S&P 500 regained their leadership position during the quarter and hampered the performance of PTL.
• We believe as the bull market continues its upward momentum, PTL is well positioned to outperform the S&P 500 due to the tilt to the smaller side of the large market cap spectrum as well as its strong core positioning benefiting from both value and growth exposure as we expect the appetite for the mega-cap growth stocks will weaken in the year ahead.

(Source: Bloomberg)

Past performance is no guarantee of future results. The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. For performance data current to the most recent month end, please call 877.658.9473.

• The Inspire Tactical Balanced ETF (NYSE: RISN) delivered a return of -1.53% in the fourth quarter of 2024, slightly outperforming its benchmark, the S&P Target Risk Moderate TR Index, which posted a return of -1.99%.
• This performance was primarily influenced by the market's pullback in December 2024. The fund maintained an 80% allocation to equities at quarter-end, which declined alongside the broader market, as represented by the S&P 500 Equal Weighted Index, down -1.89%.
• Looking ahead, we anticipate a potential market correction due to elevated valuations in large-cap S&P 500 stocks. While this could impact equity holdings, our focus on smaller large-cap equities, guided by our biblical screening criteria, may mitigate the extent of any adverse effects. Additionally, we retain the flexibility to adjust allocations toward more conservative assets if market conditions warrant.
• Entering the first quarter of 2025, our strategy continues to emphasize an estimated 80% allocation to U.S. stocks scoring positively on the Inspire Impact Scale. These holdings prioritize mid to large-cap, biblically aligned companies with a proven track record of revenue and profit growth, low debt levels, and reasonable P/E ratios.
• The remaining 20% of the portfolio is allocated to short-term floating-rate government bonds as a defensive position. While we are monitoring conditions for a possible shift to standard short-term government bonds, the current allocation has been effective and will remain in place until short-term interest rates begin to decline.

— Jacob Chandler, Manager

(source: Bloomberg)

Past performance is no guarantee of future results. The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. For performance data current to the most recent month end, please call 877.658.9473.

• WWJD was down -9.36% in the 4^th quarter, underperforming the S&P International 700 TR Index return of -7.10%, a difference of 226 basis points. 
• Being highly correlated with the index during the quarter shows that the diversification of the fund, with only 200 positions, is well positioned to compete against the international index with 700 positions in the coming year.
• We remain confident that the discipline of the fund should allow for the outperformance of WWJD in the coming year as it is equally weighted, and the index is market cap weighted. 

(Source: Bloomberg)

Past performance is no guarantee of future results. The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. For performance data current to the most recent month end, please call 877.658.9473.

• IBD was down -1.30% in the 4^th quarter, slightly outperforming the fixed income benchmark of the Bloomberg Barclays US Intermediate Corporate Index, which was down -1.40%.  
• The increase in the yield curve brought negative performance for intermediate bonds in Q4 as well as the longer end of the yield curve. 
• With the Federal Reserve having started its process of lowering interest rates over the past three meetings, the yield curve jumped up in a parallel shift due to the unexpected strength in the economy and the potential of inflation coming back. We are now expecting the FOMC to pause the rate reductions in the coming months as they are concerned about reigniting inflation. 

(source: Bloomberg)

Past performance is no guarantee of future results. The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. For performance data current to the most recent month end, please call 877.658.9473.

Inflation and Central Bank Response

The Fed started its process of lowering interest rates over the past 3 FOMC meetings; however, core inflation remains high at 3.2% and well above the Fed’s target of 2.0%, so we will likely see a slower pace of interest rate decreases than investors initially thought and may see a pause until mid-2025. That being said, some analysts are still expecting over 50 basis points of rate cuts before the end of the year.

GDP, Yield Curve, Employment, & Consumer Confidence

The yield curve reversed its inversion, but due to a resilient economy, the interest rates across the yield curve have moved higher over the past quarter. Employment numbers remain steady, and a recession is probably not on the immediate horizon this year, so we probably need to expect higher interest rates for longer than we expected to see over the past year.  Total job openings continue to tick down, and Private (ADP) employment gains are showing signs of slowing as well, but Consumer Sentiment, measured by the University of Michigan Consumer Sentiment Index, has steadily been moving higher since it bottomed in July at 66 and is now at 74 as we close out 2024.

Geopolitical Risks

The global capital markets continue to face several geopolitical risks as we kick off 2025, which could significantly impact investor sentiment and market stability. One key concern is the ongoing war in Israel and the Middle East against the terrorist proxies of Iran in Hamas, Hezbollah, and the Houthi rebels. The Russia/Ukraine war appears to have reached a stalemate, but neither side is showing any willingness to negotiate and end the fighting yet. Political conflicts with China can also introduce instability and raise concerns about the business environment in the next several months. At least the heated political environment that we endured most of last year has subsided, and we hope that Donald Trump can bring some stability to foreign relations as he starts his second term as president. Knowing who is in charge will take some of the uncertainty out of the market, but fluctuations in stock prices will remain and be driven by new issues that we haven’t considered yet.  As usual, we will closely monitor global and domestic developments and assess their potential impacts on our investment strategies.

We still believe that we are in the early innings of the bull market, even though it is disappointing to see the negative performance this quarter for all our ETFs and the underperformance to their secular benchmark. We will not be surprised to see additional profit-taking during the first few months of 2025 in the mega-cap growth stocks that have caused our ETFs to underperform their secular benchmarks during this past year. This could bring a normal correction of -10% or more in the next few months but will also continue to shift attention to the broader large-cap market as well as the small and mid-cap that have been ignored for most of the past two years.  We have been facing the same headwinds for the last couple of years – inflation, high interest rates, war in Ukraine, war in Israel, and geopolitical tensions with China- so we need to remain patient and stay focused on long-term opportunities. 

Whatever may come, our Lord is still in control. We remain thankful for the provision, protection, and blessings that we receive from our Heavenly Father and are looking expectantly to what God has in store for 2025 and beyond.

We are thankful for each of you for bringing Glory and Honor to our Heavenly Father and our Savior Jesus Christ as you serve your clients through Biblically Responsible Investing.