The U.S. economy showed persistent resilience in the final quarter of 2025 amid continued global and domestic challenges. Estimates are that Real Gross Domestic Product (GDP) grew in the fourth quarter at an annualized rate of just 1.2%, a slowdown from the third quarter’s strong growth of 4.3%. For the entire year 2025, forecasts indicate that a respectable 1.9% annual inflation-adjusted growth rate was produced by the U.S. economy.
During the final quarter, the labor market data pointed to continued cooling. In December, non-farm payrolls rose by less than expected with only 50,000 net new jobs created that month. Despite that, the unemployment rate did edge down to 4.4% that final month. While job growth has lagged expectations, average hourly earnings climbed a very respectable 3.8% year-over-year, and average weekly hours worked declined only slightly. However, long-term unemployment has remained elevated, with 1.9 million U.S. employees out of work for more than 27 weeks.
Meanwhile, in the last quarter of the year, inflation continued to ease. The Consumer Price Index rose 2.7% year-over-year in November, with core CPI at 2.6%, the lowest levels in years. Against that inflationary and employment backdrop, the Federal Reserve reduced its key overnight Federal Funds Rate to 3.50–3.75% in December, marking the third cut for the year. The Open Market Committee meeting minutes revealed a split, with some officials advocating more significant cuts if inflation continued to decline, while others urged caution on both inflation and labor indicators.
Domestically, politically driven uncertainty around tariffs, government shutdown, and Federal Reserve leadership continued to weigh on businesses. Consumer confidence remained subdued. The Conference Board index fell for the fifth consecutive month, dropping to 89.1 in December, driven by sharply lower assessments of current business conditions as well as stagnating expectations. The expectations component has remained under 80, the level typically signaling rising recession risk, for almost a year.
Globally, Q4 growth remained uneven. Geopolitical tensions, including the conflicts in the Middle East and Russia–Ukraine, continued to weigh on economic activity and future prospects around the world. The Eurozone continued its positive, but subdued economic growth in the final quarter of the year. Japan saw its GDP contracting several quarters earlier in the year, but it is estimated to have rebounded in the fourth quarter driven by exports. Meanwhile, China grew in Q4, supported by policy stimulus, though many are cautious about the fragility of underlying demand. More broadly, emerging economies have been much stronger than prior years. Geopolitical instability, particularly in the Middle East, Europe, and through energy-related sanctions, kept upward pressure on oil and gas markets. Meanwhile, global energy production grew faster than demand, keeping prices contained but volatile.
Heading into early 2026, the U.S. economy faces headwinds: slowing growth, a cooling labor market, and sticky inflation. The Federal Reserve is expected to pause further rate cuts until more clarity emerges. Elevated political uncertainty and global instability add to downside risks. Recent developments in Venezuela and Iran might have significant implications. Developed economies are likely to continue to grow modestly while emerging markets should show strength despite trade uncertainty.
Given the current circumstances, to manage the likely volatility, investors should stay alert to policy changes and global tensions, while maintaining diversification across asset classes and regions and remaining discipline in rebalancing
Sources:
• Bureau of Economic Analysis
• Bureau of Labor Statistics
• International Monetary Fund
• The Conference Board
Certain statements may include forward-looking information based on current beliefs, expectations, and assumptions. These statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. Inspire undertakes no obligation to update or revise any forward-looking statements.
The fourth quarter began with a continuation of the rally from the previous quarter across U.S. and global markets, maintaining that momentum until mid-November, when the markets started to show weakness. The international markets regained the lead over U.S. markets, a trend that had persisted for most of the year, as investors’ optimism shifted away from U.S. markets in late December. The S&P 600 Small Cap index, the S&P 400 Mid Cap Index, and the S&P 500 Index all ended the quarter with weak returns of 1.69%, 1.64%, and 2.65%, respectively, while the S&P International 700 index posted a strong return of 5.92%.
Over the past 12 months, the stock market witnessed a generally positive trajectory across all the major equity indexes until mid-February, when the U.S. markets started to fall toward correction territory. The S&P 500 still experienced strong growth during this period, turning in a one-year return of 17.86% on a total return basis. In contrast, the S&P 400 and S&P 600, representing mid-cap and small-cap companies, enjoyed overall gains until February 19th when the retreat started. After hitting support in early April, all major markets rallied through the end of the fourth quarter. The S&P 400 Mid-Cap Index posted a one-year return of 7.48%, outpacing the S&P 600 Small Cap Index that rose only by 5.99% during the same time frame. As for the S&P International 700 Index, it has had strong momentum since April and outpaced the U.S. markets with a one-year return of 35.45%. 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 had previously hoped. Even though we are still in the early innings of the current bull market, we could easily see a correction in the first few months of 2026. Even with this warning in mind, we recommend investors remain invested and stay focused on the long-term opportunities in a well-diversified global portfolio, as the probability of positive returns over the next 12 to 24 months is extremely high.
Inflation came in at 0.30% (month-over-month) in December, meeting expectations of a 0.30% increase. Unfortunately, due to the government shutdown for most of the 4th quarter, numbers were not published for October or November. As of the end of 2025, the headline Inflation number came in at 2.7% for the past year, while the core inflation number fell to 2.6%. We will likely continue to see month-over-month numbers stay in the 0.20% to 0.40% territory for the next several months, which will keep the CPI year-over-year number below the 3% level over the next 12 months as the economy continues to grow modestly.
Due to the government shutdown in October and November, the initial GDP report for the third quarter was not published. When the “second” release came in last month, GDP growth came in higher than the expectation of 3.3% for the third quarter, with an actual 4.3% growth rate. The expectation was revised to 4.2% for the third release and will be published on January 22. The debate among economists and market pundits during the past quarter has been focused on whether the government shutdown would cause a recession and weaker GDP numbers. So far, they have been wrong with both expectations.
The yield curve is no longer inverted, but there is now a fear of a recession brought on by a slowing labor market, slower consumer spending, and uncertainty over the Trump administration’s policies and their effect on the U.S. consumer. Recessions are usually declared after an inversion reverses, so this would not be surprising.
Due to the government shutdown in the past quarter, we did not get unemployment numbers for October. However, the unemployment rate rose to 4.6% in November, primarily due to layoffs during the government shutdown. The labor market bounced back in December, and the unemployment rate fell to 4.4%, beating expectations of 4.6%. Although we are still above the 4% level, it is possible we could see the unemployment rate begin a downward path if the economy remains resilient and interest rates continue to fall in 2026.
Nonfarm Payrolls had a weak showing with October coming in at -105k jobs, which was below the estimate of -15k. The job losses are directly attributable to the government shutdown in October and November. The new job numbers bounced back in November and December with new jobs of 64k and 50k, respectively, showing resilience when the government reopened.
The Federal Open Market Committee continued down the path of cutting the Federal Funds rates during the meeting on December 10th by cutting the benchmark range by 25 bps. Based on Chair Powell’s recent comments, we should not be surprised if they pause rate cuts for the next two or three meetings, as he still remains worried about inflation and says the FOMC will remain dependent on the data, which shows a slow but resilient economy. Although many analysts fully expect the rate cut cycle to continue in 2026, it will not be surprising for a pause as tensions between President Trump and Chairman Powell appear to be escalating. The current expectation is for the terminal rate to be in the 3.25% range by mid-2027 due to ongoing inflationary concerns. The Federal Reserve has faced a challenging balancing act throughout 2025. While a cooling labor market would typically justify rate cuts, concerns about inflation remain. Instead of an aggressive easing policy, the Fed has been extremely slow in its moves, waiting for clearer data on both inflation and broader economic conditions.
Inspire Investing, LLC serves as the investment adviser to certain proprietary ETFs used in Inspire portfolios. Inspire receives management fees from these ETFs, creating a potential conflict of interest. Inspire seeks to mitigate this conflict through policies and procedures that ensure recommendations are made in clients' best interests and consistent with their unique goals and risk profiles. Additional details can be found in Inspire's Form ADV Part 2A. Past performance is not indicative of future results. All performance figures referenced herein are historical and may not reflect current or future market conditions. Actual investor outcomes may vary. There is no assurance that any investment strategy will achieve its objectives or avoid losses.
Inspire Investing, LLC serves as the investment adviser to certain proprietary ETFs used in Inspire portfolios. Inspire receives management fees from these ETFs, creating a potential conflict of interest. Inspire seeks to mitigate this conflict through policies and procedures that ensure recommendations are made in clients' best interests and consistent with their unique goals and risk profiles. Additional details can be found in Inspire's Form ADV Part 2A. Past performance is not indicative of future results. All performance figures referenced herein are historical and may not reflect current or future market conditions. Actual investor outcomes may vary. There is no assurance that any investment strategy will achieve its objectives or avoid losses.
Inspire Investing, LLC serves as the investment adviser to certain proprietary ETFs used in Inspire portfolios. Inspire receives management fees from these ETFs, creating a potential conflict of interest. Inspire seeks to mitigate this conflict through policies and procedures that ensure recommendations are made in clients' best interests and consistent with their unique goals and risk profiles. Additional details can be found in Inspire's Form ADV Part 2A. Past performance is not indicative of future results. All performance figures referenced herein are historical and may not reflect current or future market conditions. Actual investor outcomes may vary. There is no assurance that any investment strategy will achieve its objectives or avoid losses.
Inspire Investing, LLC serves as the investment adviser to certain proprietary ETFs used in Inspire portfolios. Inspire receives management fees from these ETFs, creating a potential conflict of interest. Inspire seeks to mitigate this conflict through policies and procedures that ensure recommendations are made in clients' best interests and consistent with their unique goals and risk profiles. Additional details can be found in Inspire's Form ADV Part 2A. Past performance is not indicative of future results. All performance figures referenced herein are historical and may not reflect current or future market conditions. Actual investor outcomes may vary. There is no assurance that any investment strategy will achieve its objectives or avoid losses.
Inspire Investing, LLC serves as the investment adviser to certain proprietary ETFs used in Inspire portfolios. Inspire receives management fees from these ETFs, creating a potential conflict of interest. Inspire seeks to mitigate this conflict through policies and procedures that ensure recommendations are made in clients' best interests and consistent with their unique goals and risk profiles. Additional details can be found in Inspire's Form ADV Part 2A. Past performance is not indicative of future results. All performance figures referenced herein are historical and may not reflect current or future market conditions. Actual investor outcomes may vary. There is no assurance that any investment strategy will achieve its objectives or avoid losses.
Inspire Investing, LLC serves as the investment adviser to certain proprietary ETFs used in Inspire portfolios. Inspire receives management fees from these ETFs, creating a potential conflict of interest. Inspire seeks to mitigate this conflict through policies and procedures that ensure recommendations are made in clients' best interests and consistent with their unique goals and risk profiles. Additional details can be found in Inspire's Form ADV Part 2A. Past performance is not indicative of future results. All performance figures referenced herein are historical and may not reflect current or future market conditions. Actual investor outcomes may vary. There is no assurance that any investment strategy will achieve its objectives or avoid losses.
The Inspire Tactical Balanced ETF (NYSE: RISN) returned -2.44% for the quarter, bringing its annualized performance to 6.63% since inception on July 15, 2020. RISN underperformed its benchmark this quarter, as the S&P Target Risk Moderate TR Index posted a 1.98% return. This underperformance was largely driven by the fund being invested more aggressively than the benchmark during the volatile fourth quarter.
RISN maintained an 80% equity allocation during the quarter. Our equity strategy continues to focus on U.S. companies that score highly on the Inspire Impact Score. These biblically aligned businesses are primarily mid- to large-cap companies with strong fundamentals, including consistent revenue and profit growth, low debt levels, and attractive or fair valuations.
The remaining 20% of the portfolio is allocated to short-term, floating-rate U.S. government bonds. This allocation serves as a defensive buffer in the current interest rate environment. We continue to evaluate a potential transition into standard short-term or even intermediate-term government bonds, but for now, our floating-rate position has proven effective and will remain in place until short-term rates begin to trend downward.
We are also monitoring gold as a potential addition to our principal preservation sleeve. While current prices remain elevated, a meaningful correction could present a compelling buying opportunity in the future.
Our current allocation remains at 80% equities/20% fixed income, but we are actively evaluating opportunities to shift back to a 70/30 mix as the market becomes potentially overpriced. Our long-term objective remains clear: to preserve principal and grow capital over time while staying aligned with biblical values.
Inspire Investing, LLC serves as the investment adviser to certain proprietary ETFs used in Inspire portfolios. Inspire receives management fees from these ETFs, creating a potential conflict of interest. Inspire seeks to mitigate this conflict through policies and procedures that ensure recommendations are made in clients' best interests and consistent with their unique goals and risk profiles. Additional details can be found in Inspire's Form ADV Part 2A. Past performance is not indicative of future results. All performance figures referenced herein are historical and may not reflect current or future market conditions. Actual investor outcomes may vary. There is no assurance that any investment strategy will achieve its objectives or avoid losses.
Inspire Investing, LLC serves as the investment adviser to certain proprietary ETFs used in Inspire portfolios. Inspire receives management fees from these ETFs, creating a potential conflict of interest. Inspire seeks to mitigate this conflict through policies and procedures that ensure recommendations are made in clients' best interests and consistent with their unique goals and risk profiles. Additional details can be found in Inspire's Form ADV Part 2A. Past performance is not indicative of future results. All performance figures referenced herein are historical and may not reflect current or future market conditions. Actual investor outcomes may vary. There is no assurance that any investment strategy will achieve its objectives or avoid losses.
Certain statements may include forward-looking information based on current beliefs, expectations, and assumptions. These statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. Inspire undertakes no obligation to update or revise any forward-looking statements.
Yields fell on the short-term end of the yield curve spectrum due to the decision by the FOMC to lower the Federal Funds Target Range by 25 bps at their most recent meeting, but shifted higher on the longer-term side, with the pivot point being the 7-year maturities.
As of the end of the fourth quarter, the 3-month T-Bill yield fell from 3.939% to 3.633% vs the 10-year U.S. Treasury, which rose slightly less than 2 bps from 4.151% to 4.169%.
The 2-year U.S. Treasury yield declined from 3.609% to 3.475% for a decrease of over 13 bps as the 5-year yield fell from 3.742% to 3.726% (a decrease of less than 2 bps) and the 30-year Treasury saw an increase from 4.732% to finish the quarter at 4.845% (an increase of 11 bps).
The probability of a recession has moderated as the economy has not slowed as much as expected, even though the employment numbers show some weakening. Although a recession may be avoidable, the estimate remains around 30% according to the Bloomberg survey results.
Inspire Investing, LLC serves as the investment adviser to certain proprietary ETFs used in Inspire portfolios. Inspire receives management fees from these ETFs, creating a potential conflict of interest. Inspire seeks to mitigate this conflict through policies and procedures that ensure recommendations are made in clients' best interests and consistent with their unique goals and risk profiles. Additional details can be found in Inspire's Form ADV Part 2A. Past performance is not indicative of future results. All performance figures referenced herein are historical and may not reflect current or future market conditions. Actual investor outcomes may vary. There is no assurance that any investment strategy will achieve its objectives or avoid losses.
The Fed restarted its process of lowering interest rates during the fourth quarter after remaining on pause for most of the FOMC meetings in 2025. Although core inflation remains elevated at 2.6%, well above the Fed’s target of 2.0%, we will likely see more interest rate decreases in 2026, but could see another pause during the first quarter.
The yield curve reversed its climb and fell in a pivoting fashion due to the interest rate cut during the most recent FOMC meeting. Employment numbers showed weakness, but a recession is probably not on the immediate horizon in the coming year. Total job openings continue to tick down, and Private (ADP) employment gains are slowing as well, but Consumer Sentiment, measured by the University of Michigan Consumer Sentiment Index, has steadily been falling since hitting resistance at 61.8 in July and is now at 52.9 as of the end of the fourth quarter. It is believed that in the fourth quarter, GDP will continue the strong momentum we are seeing in the third quarter reports.
The global capital markets continue to face several geopolitical risks as we move into 2026, which could significantly impact investor sentiment and market stability. The new concerns we are watching are new conflicts in Venezuela and the protests in Iran. The old concerns are also still present, such as new tariff threats on India and China, as well as sanctions on Russia due to the ongoing war between Russia and Ukraine. It does not appear that Putin is serious about negotiating a lasting peace, so the conflict could weigh on the geopolitical environment for the next several months. We believe that volatility in stock prices will remain high and may be driven by new issues that we haven’t even considered yet. As usual, we will closely monitor global and domestic developments and assess their potential impacts on our investment strategies.
Certain statements may include forward-looking information based on current beliefs, expectations, and assumptions. These statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. Inspire undertakes no obligation to update or revise any forward-looking statements.
We believe that we are still in the early innings of the bull market, even though we experienced mixed results from our ETFs in the past quarter. The good news is that our ETFs all had good positive performance for 2025. With the strong market performance over the past year, we would not be surprised to see a correction of -10% or more in the next 3 to 6 months as investors look to take profits or rebalance their portfolios over the next couple of quarters. We still expect the broader large-cap market, as well as the small and mid-cap markets that have been ignored for most of the past two years, to show tremendous upside potential in the next 12 to 24 months. We will always face headwinds, but the market almost always ‘climbs a wall of worry’, 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 2026 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.
Inspire Investing, LLC serves as the investment adviser to the Inspire ETFs mentioned in this document. As such, Inspire receives management fees from these funds. This creates a conflict of interest as the firm has a financial incentive to promote its proprietary funds. Inspire seeks to mitigate this conflict through disclosure and a fiduciary duty to recommend investments suitable for clients.
Certain statements contained in this document may be forward-looking in nature and based on current expectations, estimates, and projections. Such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual outcomes may differ materially.
This content is provided for educational and informational purposes only and should not be considered personalized investment advice. Inspire does not provide legal, tax, or accounting advice. Please consult your own advisor regarding your specific situation.
Prepared by Darrell W. Jayroe, CFA, CFP®, CKA®
SENIOR PORTFOLIO MANAGER
for financial professional use only - not for use with the general public