Q3 2022
Quarterly Review & Commentary
Quarter Three · Two Thousand and Twenty Two

Prepared by Darrell W. Jayroe, CFA, CFP®, CKA®



SENIOR PORTFOLIO MANAGER





for professional use only
Economic Summary

The US economy continued to stagnate in the third quarter. Early estimates are that U.S. Real (inflation-adjusted) Gross Domestic Product (GDP) rose only slightly, 0.5% (annualized), during the quarter, after declines in the prior two quarters of the year. The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) has yet to make the official call of a “recession” having occurred in 2022, but conventional wisdom is that two consecutive quarters of economic growth determines a recession. Therefore, many investors are of the view that we are already in a recession with the only remaining question being how long it will last and how severe it will be.

The factors contributing to this on-going stagnation include not only the predictable hangover from the surge of economy activity with the post-pandemic reopening, but also the impact of the continuing Russian aggression in Ukraine which has significantly disrupted global energy and agricultural markets.  Further, global supply chains and labor market tightness continue to make for a challenging economic environment.

Surprisingly, despite the recessionary backdrop, inflation has proven to be stubbornly resistant across all the world’s economies. While initially thought to be “transitory,” inflation, most recently reported at 8.2% (Consumer Price Index, September), appears to be setting into the expectations of economic participants the world over. As a result, central banks, including our Federal Reserve, have been aggressively tightening monetary policy. In the U.S., the overnight Federal Funds has been hiked to 3.25% with many projecting that it will reach 4.5% before the hiking efforts halt. Also, the Federal Reserve’s prodigious balance sheets, increased through “quantitative easing” over many years, is now entering a phase of “quantitative tightening”. While investors are pleased to see the Federal Reserve’s resolve to tame inflation, there is heightened concern that a monetary “mistake” might occur putting the economy into an even deeper and longer recession.

To the surprise of many, despite the slowing economy, the labor market remains very robust. The Unemployment Rate for September came in at 3.5%, equaling a five-decade low. Finally, the number of Americans employed has surpassed the February 2020 pre-pandemic. So, finally, the number of jobs lost during the Covid-19 pandemic (25 million) have now been fully recovered. However, even that good news is tempered by the falling labor participation rate (62.3% in September) which continues its long-term downward trend from near 70% in the late 1990s. This declining workforce makes it challenging to achieve robust economic growth and tame inflation in the years to come.

Adding to the mix of uncertainty is the upcoming midterm elections in November which appear to be leading towards a divided government with the House of Representatives coming into a Republican majority, the White House remaining with the Democrats, and the Senate too close to call at this point. Historically, investors have viewed a balance of power in Washington DC favorably as it portends no significant policy and regulatory changes occurring which is a favorable climate for business.

Looking forward, investors need to stay invested, but continue to be diligent to the threat of stagflation. An continued weak economy combined with persistently high inflation would not bode well for either bond or stock investments, which have already suffered significantly in 2022. Commodities, which have seen favorable tailwinds recently, will likely continue that trend in the coming months. Stay alert!

Sources:
Bureau of Economic Analysis
Bureau of Labor Statistics
International Monetary Fund
The Conference Board
Dr. Erik Davidson, CFA
Chief Economic Advisor
DR. ERIK DAVIDSON, CFA is the Chief Economic Advisor for Inspire Investing. Previously, Dr. Davidson served as the Chief Investment Officer for Wells Fargo Private Bank, leading an investment team of over 400 professionals who managed more than $200 billion in assets. Dr. Davidson holds a doctorate degree from the DePaul University’s Kellstadt Graduate School of Business and is a professor at Baylor University teaching behavioral finance.
The Stock Market

The third quarter saw an acceleration of the rally that began in mid-June as the market appeared to hit support. The S&P 500 regained its momentum until mid-August when the markets turned down for the remainder of the quarter finishing the quarter with a loss of -4.89%. All the major US markets continued to fall in the last half of the quarter and remained in Bear Market territory (down more than -20%) on a year-to-date basis as the 3rd quarter came to an end. After raising interest rates in March by 0.25%, 0.50% in May, and 0.75% in June, the Federal Reserve maintained its aggressive stance by raising interest rates by 0.75% in both July and September. The probability of rate increases of 0.75% in November and December has kept the equity markets on edge this quarter. The high inflation numbers, the war against Ukraine by Russia, and a slowing economy only gave additional fuel to the “Correction Process” and it appears that the Bear Market is not over yet as we may still have several months to go before we see the light of day of the next Bull Market cycle. That being said we do not believe it is time to panic and we continue to believe the opportunity for positive returns over the next 12 months could be higher than more downside risk. As fear is still driving the market sentiment I am reminded of this quote from Warren Buffet “Be fearful when others are greedy and greedy when others are fearful.”

Source: Bloomberg

The past 12 months have given us the rise of the Omicron Variant in the 4th quarter of 2021, the pain of inflation during the last half of 2021 and continuing in the first 3 quarters of 2022, the slowing economy, rising interest rates, and the war on Ukraine by Russia. All of these headwinds have kept the markets on a downward trajectory for the past 12 months. In that time, the S&P 500 had a total return of -15.50%, the S&P 400 Mid-cap index was down -15.29%, and the S&P 600 Small-cap index was down -18.89%. The US markets still outpaced the international markets that fell the most with a total return of -24.47%. It seems like all of the pundits and talking heads on the financial news networks are even more bearish now than at the first of the quarter, with some still expecting another 20% to 30% downside from here. With so much negativity in the markets and in the financial media, “contrarians” believe that this could be a signal that the bottom may be in and is being tested. If the contrarians are correct then positive returns in the next 2 quarters are more likely, but there is a low probability that the US markets actually finish 2022 in positive territory.

Source:Bloomberg

Economic Indicators and Calendar

Inflation - CPI Month over Month Release Date & Time Period Survey Actual
CPI MoM 01/12/2022 08:30 Dec 0.40% 0.50%
CPI MoM 02/10/2022 08:30 Jan 0.40% 0.60%
CPI MoM 03/10/2022 08:30 Feb 0.80% 0.80%
CPI MoM 04/12/2022 08:30 Mar 1.20% 1.20%
CPI MoM 05/11/2022 08:30 Apr 0.20% 0.30%
CPI MoM 06/10/2022 08:30 May 0.70% 1.00%
CPI MoM 07/13/2022 08:30 Jun 1.10% 1.30%
CPI MoM 08/10/2022 08:30 Jul 0.20% 0.00%
CPI MoM 09/13/2022 08:30 Aug -0.10% 0.10%
CPI MoM 10/13/2022 08:30 Sep 0.20% 0.40%
CPI MoM 11/10/2022 08:30 Oct
CPI MoM 12/13/2022 08:30 Nov
CPI MoM 1/10/2023 08:30 Dec
(Source: Bloomberg)

Inflation fell to 0.0% (Month over Month) in July, beating expectations 0.20%, and rose to 0.10% (Month over Month) in August. The expectation is for the month-over-month number in September to be 0.20% and will be released on October 13th. If we can see month-over-month numbers stay in the 0.0% to 0.20% territory for the next several months then the CPI year-over-year number will come back towards the 2.5% level over the next year.

Source:Bloomberg
Economic Growth Release Date & Time Period Survey Actual
GDP Price Index 01/27/2022 08:30 4Q A 5.6% 6.9%
GDP Price Index 02/24/2022 08:30 4Q S 7.1% 7.0%
GDP Price Index 03/30/2022 08:30 4Q T 7.1% 6.9%
GDP Price Index 04/28/2022 08:30 1Q A 0.8% -1.4%
GDP Price Index 05/26/2022 08:30 1Q S -1.3% -1.5%
GDP Price Index 06/29/2022 08:30 1Q T -1.5% -1.6%
GDP Price Index 07/28/2022 08:30 2Q A 0.3% -0.9%
GDP Price Index 08/25/2022 08:30 2Q S -0.6% -0.6%
GDP Price Index 09/29/2022 08:30 2Q T -0.6% -0.6%
GDP Price Index 10/27/2022 08:30 3Q A
GDP Price Index 11/30/2022 08:30 3Q S
GDP Price Index 12/22/2022 08:30 3Q T
CPI MoM 1/10/2023 08:30 Dec
(Source: Bloomberg)  (A= Advance; S= Second: T= Third)

GDP growth came in weaker than the initial expectation of +0.3% for the 2nd Quarter, with an actual -0.6% for the quarter in the Third revision.  The debate among economists and market pundits continued during the 3rd quarter whether we are already in a recession or if we will slip into recession by the end of the year.  Although there are valid arguments on both sides of this issue, we will have to wait until the end of October when the Advance number will be released for the 3rd Quarter to see if we see 3 quarters in a row of negative GDP growth. 

(Source: Bloomberg)
Labor Market Release Date & Time Period Survey Actual Revised
Unemployment Rate 1/7/2022 8:30 Dec 4.1% 3.9%
Unemployment Rate 2/5/2022 8:30 Jan 3.9% 4.0%
Unemployment Rate 3/4/2022 8:30 Feb 3.9% 3.8%
Unemployment Rate 4/1/2022 8:30 Mar 3.7% 3.6%
Unemployment Rate 5/6/2022 8:30 Apr 3.5% 3.6%
Unemployment Rate 6/3/2022 8:30 May 3.5% 3.6%
Unemployment Rate 7/8/2022 8:30 Jun 3.6% 3.6%
Unemployment Rate 8/5/2022 8:30 Jul 3.6% 3.5%
Unemployment Rate 9/2/2022 8:30 Aug 3.5% 3.7%
Unemployment Rate 10/7/2022 8:30 Sep 3.7% 3.5%
Unemployment Rate 11/4/2022 8:30 Oct
Unemployment Rate 12/2/2022 8:30 Nov
Nonfarm Payrolls (Change) 1/7/2022 8:30 Dec 444k 199k 647k
Nonfarm Payrolls (Change) 2/5/2022 8:30 Jan 51k 467k 588k
Nonfarm Payrolls (Change) 3/4/2022 8:30 Feb 424k 678k 504k
Nonfarm Payrolls (Change) 4/1/2022 8:30 Mar 469k 431k 714k
Nonfarm Payrolls (Change) 5/6/2022 8:30 Apr 386k 428k 398k
Nonfarm Payrolls (Change) 6/3/2022 8:30 May 323k 390k 468k
Nonfarm Payrolls (Change) 7/8/2022 8:30 Jun 265k 372k 386k
Nonfarm Payrolls (Change) 8/5/2022 8:30 Jul 235k 528k 293k
Nonfarm Payrolls (Change) 9/2/2022 8:30 Aug 295k 315k 537k
Nonfarm Payrolls (Change) 10/7/2022 8:30 Sep 265k 263k
Nonfarm Payrolls (Change) 11/4/2022 8:30 Oct
Nonfarm Payrolls (Change) 12/2/2022 8:30 Nov
Source: Bloomberg

The Unemployment rate ticked down to 3.5% in July after being steady at 3.6% in the 2nd quarter but jumped to 3.7% in August.  We saw an unexpected drop in the unemployment figure when the September data was released back down to 3.5.%. It is still possible we could see the unemployment start to rise in the 4th quarter as the economy slows and layoffs increase; however with so many jobs still open and unfilled in the US those laid off may not add to the unemployment roles for long if at all. 

Nonfarm Payrolls continue to have strong monthly numbers and may remain strong in the face of a recession as those that are laid off in the coming months may be able to fill some of the 11 million job openings in the US. If the employment picture remains this robust in the face of rising interest rates the Federal Reserve will not be inclined to curb their enthusiasm for higher interest rates as they seem to want to see unemployment rise to 5 or 6%.

Source: Bloomberg
Monetary Policy - Federal Reserve Meeting Date Rate Decision (%) For Against Revised
FOMC Meeting 01/26/2022 .00-.25 9 0
FOMC Meeting 03/16/2022 .25-.50 8 1
FOMC Meeting 05/04/2022 .50-.75 9 0
FOMC Meeting 06/15/2022 1.50-1.75 10 1
FOMC Meeting 07/27/2022 2.5-2.75 12 0
FOMC Meeting 09/21/2022 3.25-3.5 12 0
FOMC Meeting 11/02/2022
FOMC Meeting 12/14/2022
Unemployment Rate 9/2/2022 8:30 Aug 3.5% 3.7%
Unemployment Rate 10/7/2022 8:30 Sep 3.7% 3.5%
Unemployment Rate 11/4/2022 8:30 Oct
Unemployment Rate 12/2/2022 8:30 Nov
Nonfarm Payrolls (Change) 1/7/2022 8:30 Dec 444k 199k 647k
Nonfarm Payrolls (Change) 2/5/2022 8:30 Jan 51k 467k 588k
Nonfarm Payrolls (Change) 3/4/2022 8:30 Feb 424k 678k 504k
Nonfarm Payrolls (Change) 4/1/2022 8:30 Mar 469k 431k 714k
Nonfarm Payrolls (Change) 5/6/2022 8:30 Apr 386k 428k 398k
Nonfarm Payrolls (Change) 6/3/2022 8:30 May 323k 390k 468k
Nonfarm Payrolls (Change) 7/8/2022 8:30 Jun 265k 372k 386k
Nonfarm Payrolls (Change) 8/5/2022 8:30 Jul 235k 528k 293k
Nonfarm Payrolls (Change) 9/2/2022 8:30 Aug 295k 315k 537k
Nonfarm Payrolls (Change) 10/7/2022 8:30 Sep 265k 263k
Nonfarm Payrolls (Change) 11/4/2022 8:30 Oct
Nonfarm Payrolls (Change) 12/2/2022 8:30 Nov
Source: Bloomberg

With elevated inflation and strong employment, the Fed has indicated it will focus on curtailing inflation, even amid geo-political turmoil and a negative 2q2022 GDP number.  The Federal Open Market Committee raised the Federal Funds rate by 0.25% in March, 0.50% in May, and 0.75% in June, July and September.  Based on Chair Powell’s recent comments, we should expect a rate hike of 0.75% at both the November and December meetings.  As the Federal Reserve was late to start raising interest rates it will not be surprising to see them raise interest rates too high causing unnecessary damage to the economy in their efforts to bring inflation down.

Source:Bloomberg
Inspire 100 ETF [NYSE: BIBL]
  • BIBL outperformed the S&P 500 Index by 15 bps as the correlation to the large cap market narrowed on the broad based weakness of the US large cap market.  
  • BIBL is underweight in the Communications, Discretionary, Staples and Financials sectors relative to the S&P 500.  BIBL is overweight in the Industrials, Technology, Materials and Real Estate sectors relative to the S&P 500, and in line in Utilities, Energy and Healthcare.
  • We believe that when the next bull market starts BIBL is well positioned to outperform the S&P 500 due to the tilt to the smaller side of the market cap spectrum as well as its strong core positioning benefiting from both the value and growth recovery.
(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.

Performance data as of
9/30/2022
. You cannot invest directly in an index. The S&P 500 is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. The Inspire 100 Index is a rules based, passive index which tracks the stock performance of the one-hundred highest Inspire Impact Scoring companies in the United States with market capitalizations above $13B. The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investoror’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.inspireETF.com. Total annual operating expenses are 0.42%. Net expense ratio for the fund is 0.35%. The Fund’s adviser has contractually agreed to reduce fees and/or absorb expenses until at least March 31, 2023.
Inspire Global Hope ETF [NYSE: BLES]
  • BLES underperformed the S&P Global 1200 Index for the 3rd Quarter by only 32 bps. 
  • Global markets mirrored the US large cap market as the correction/Bear Market continued to look for a support level by testing the lows of mid-June.
  • We still believe that the tilt to the smaller end of the large cap spectrum of BLES will come back into favor when the economic numbers start to improve in 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.

Performance data as of
9/30/2022
. You cannot invest directly in an index. The S&P Global 1200 Index is a free-float weighted stock market index of global equities from Standard & Poor’s. The index covers 31 countries and approximately 70 percent of global stock market capitalization. Inspire Global Hope Large Cap Equal Weight Index tracks the stock performance of 400 of the most inspiring large cap companies from around the globe. The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.inspireETF.com. Total annual operating expenses are 0.49%.
Inspire Fidelis Multi Factor ETF [NYSE: FDLS]
  • FDLS was launched on August 24th as a global, all-cap, multi-factor ETF.  
  • Although FDLS was down for its first five weeks it slightly outperformed the MSCI World Diversified Multi-factor Index by 24 bps as well as outperforming the S&P 500 by 131 bps.
  • We believe that the 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 when the next bull market starts.
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.

Performance data as of
9/30/2022
. You cannot invest directly in an index. The S&P Global 1200 Index is a free-float weighted stock market index of global equities from Standard & Poor’s. The index covers 31 countries and approximately 70 percent of global stock market capitalization. Inspire Global Hope Large Cap Equal Weight Index tracks the stock performance of 400 of the most inspiring large cap companies from around the globe. The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.inspireETF.com. Total annual operating expenses are 0.49%.
Inspire Momentum ETF [NYSE: GLRY]
  • The US Mid Cap space is in no way immune to higher rates and further recession concerns, but the risks are different in size and scope.
  • Multiple gains and retracements in a variety of time periods and across multiple asset classes over the past quarter have been headwinds to momentum style investing
  • Strategies remain slightly uncorrelated to other momentum names due to BRI commitment and financial health screening
  • We see clarity starting to form by end of Q4, regardless of the outcomes achieved.

—Matt Melott, 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.

Performance data as of
9/30/2022
. You cannot invest directly in an index. The S&P SmallCap 400 Index measure the mid cap segment of the U.S. equity market. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.inspireETF.com. Total annual operating expenses are 1.02%. Net expense ratio for the fund is 0.80%. The Fund’s adviser has contractually agreed to reduce fees and/or absorb expenses until at least March 31, 2023. 
Inspire Small/Mid Cap ETF [NYSE: ISMD]
  • Although in line with the Small Cap and Mid Cap markets, ISMD underperformed the S&P Midcap 400 index and outperformed the S&P Small cap 600 Index by -179 bps and +94 bps respectively for the 3rd quarter.
  • Touching the Bear Market threshold in Mid-June the small and mid-cap markets rallied for 6 weeks before falling the last half of the quarter to test the lows of the 2nd quarter.
  • The equal weighting of the 500 stocks in ISMD were in line with the market cap weighting of the small and midcap indexes showing that the correlation in the small and midcap markets is strong.
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.

Performance data as of
9/30/2022
. You cannot invest directly in an index. The S&P Small Cap 600 Index measure the small cap segment of the U.S. equity market. The Inspire Small/Mid Cap Impact Equal Weight Index tracks the stock performance of 500 of the most inspiring small and mid cap companies in the U.S. The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.inspireETF.com. Total annual operating expenses are 0.48%.
Inspire 500 ETF [NYSE: PTL]

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.

Performance data as of
9/30/2022
. You cannot invest directly in an index. The S&P Small Cap 600 Index measure the small cap segment of the U.S. equity market. The Inspire Small/Mid Cap Impact Equal Weight Index tracks the stock performance of 500 of the most inspiring small and mid cap companies in the U.S. The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.inspireETF.com. Total annual operating expenses are 0.48%.
Inspire Tactical Balanced ETF [NYSE: RISN]
  • RISN returned -3.49% in the 3rd Quarter and outperformed the S&P Target Risk Moderate TR Index benchmark for the quarter by 184 bps, which returned -5.33%. 
  • We attribute this performance for the quarter to our positioning of the fund in a conservative allocation with regard to the stock market at the end of January. Also, our short-duration positioning has helped to minimize volatility for the quarter.
  •  The first adjustment that we made to the allocation of the fund (RISN) this quarter, was to the treasury holdings of the fund. We have positioned the majority of the “defensive” allocation into short-term floating rate treasuries which are currently getting a decent yield and have a very steady price while interest rates continue to rise.
  •  The second adjustment that we made to the allocation, was to adjust the allocation to gold. Our indicators turned down for Gold and we decided to remove it from the fund’s holdings until the trend looks more favorable.    
  • Moving forward we will continue to monitor these allocations and as our indicators improve for US Large Cap stocks, we will begin to move back into a more aggressive allocation. For the time being, we do not anticipate this will be the case in the near term and may continue holding this more conservative allocation until things in the US economy and equity markets decide to change course. 

—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.

Performance data as of
This is some text inside of a div block.
. You cannot invest directly in an index. The S&P Target Risk Moderate Index is designed to measure the performance of moderate stock-bond allocations to fixed income while seeking to increase opportunities for higher returns through equities. The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.inspireETF.com. Total annual operating expenses are 0.71%.
Inspire International ETF [NYSE: WWJD]
  • WWJD was down -9.84% in the 3rd quarter outperforming the S&P International 700 TR Index return of -10.38%; an outperformance of 54 basis points. 
  • The outperformance is most likely due to the weakness in Chinese stocks in the quarter relative to the Emerging markets. Although Chinese stocks are a large portion of the index, we have chosen not to hold any stocks in China due to the human rights abuses by the CCP.
  • WWJD is equally weighted, and the index is market cap weighted and WWJD holds 200 positions vs. the index with 700 positions.
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.

Performance data as of
9/30/2022
. You cannot invest directly in an index. The S&P International 700 measures the non-U.S. component of the global equity market through an index that is designed to be highly liquid and efficient to replicate. The Inspire Global Hope Ex-US Index intends to track the price movements of a portfolio of 200 of the most inspiring, biblically aligned large cap companies outside of the United States. The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.inspireETF.com. Total annual operating expenses are 0.69%.
The Bond Market

THE YIELD CURVE RISES - AGAIN  -  the yield curve rose in a parallel fashion during the 3rd quarter for maturities 10 years and longer but spiked dramatically for the shorter maturities. Interest rates from 1 month to 30 years all went up in the 3rd quarter as the Federal Reserve continued their accelerated interest rate increases with jumps of 75 bps in both July and September.

As of the end of the 3rd quarter, the 1-year US Treasury yield increased from 2.777 to 3.989 (a 121 bps increase) vs the 10-year US Treasury which rose from 3.016% to 3.832 (for an 81.6 bps rise). Analysts predict that the 10-year rate will hit 4.5% before the end of 2022.

The 2-year U.S. Treasury yield increased from 2.957% to 4.281%, the 5-year yield rose from 3.04% to 4.092% and the 30-year treasury rose from 3.185% to finish the quarter at 3.779%.

The recent talk has turned to the possibility that the Federal Reserve will not acknowledge that inflation is already starting to subside and will push the interest rate increases too far thus missing a soft landing and instead orchestrating a hard landing/recession. The probability of a recession is still high as the economy is slowing but with strong employment numbers and consumer spending, a recession is still avoidable if the Federal Reserve will not push its rate increase process too far.

Source: Bloomberg 09-30-2022

Inspire Corporate Bond ETF [NYSE: IBD]
  • IBD was down -2.71% in the 3rd quarter, slightly outperforming the fixed income benchmark of the Bloomberg Barclays US Intermediate Credit Index which was down -3.08%.  
  • The shift upward in the yield curve caused negative performance for the bond market in Q3 due to two interest rate increases by the Federal Reserve in the third quarter, one in July (75 bps) and one in September (75 bps).
  • Economic growth continues to slow and with the increased probability of a recession, it is highly likely that the yield curve could shift in a parallel fashion to the upside again the 4th quarter.
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.

Performance data as of
9/30/2022
. You cannot invest directly in an index. The Bloomberg Barclays US Intermediate Credit Index measures the performance of investment grade, US dollar-denominated, fixed-rate, taxable corporate and government-related debt with less than ten years to maturity. The Inspire Corporate Bond Impact Equal Weight Index is comprised of 250 investment grade, intermediate term corporate bonds issued by some of the most inspiring large cap “blue chip” companies in the United States. The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.inspireETF.com. Total annual operating expenses are 0.44%.
Things to Watch

Geopolitical Risks and Volatility

With the Russian/Ukrainian war entering its 8th month, it still remains unclear how long the conflict will last or how it will end.  Despite the increased sanctions and military aid from the West, Russia seems to have plenty of revenue from high oil prices to finance both the war and economic relief packages to keep its citizens appeased with the conflict. However, Ukraine has recently launched an offensive and seem to have momentum in their effort to retake territory that was seized at the start of the conflict.  Outside observers, especially those nations that have been providing military support to Ukraine (including the US), are watching to see if Ukraine has any chance to capitalize on their offensive and turn the direction of the war in their favor.   The key question still remains - what will a post-war Russia look like and how will the West respond?  With so much geo-political, fiscal, and monetary uncertainty, volatility (in both directions) will remain elevated in the coming weeks and months.

Inflation and Employment

The August CPI month-over-month reading was 0.1%, coming in above the consensus decline of 0.1%.  Year over year inflation fell from 8.5% to 8.3% but was still higher than the 8.1% rate analysts were predicting.  We will continue to closely monitor monthly inflation readings and the Fed’s response as this will undoubtedly impact capital market returns and volatility in the months and years ahead.  

The Consumer and GDP

Second quarter GDP figures were revised slightly higher (-0.6% versus -0.9%) but were still negative, coming on the heels of a -1.6% rate in the first quarter.  Although two consecutive quarters fits the rule-of-thumb definition of a recession, it would not be a complete surprise if the NBER (National Bureau of Economic Research, the official arbiter of calling recession dates in the US) doesn’t declare a recession for this time period given relatively strong employment (unemployment fell unexpectedly from 3.7% to 3.5%, as this is still considered very strong) and other factors. Regardless of whether or not we are in an official recession, the GDP numbers are clearly showing that growth has slowed.  We will continue to keep a close eye on consumer confidence, spending, and growth figures going forward.

Corporate Profits

Much of the strong equity results in 2021 were driven by remarkable corporate profitability (the S&P 500 profits rose 45%, an all-time high). We mentioned that we didn’t expect to see such a rise in profits in 2022. However, corporate earnings are still rising in 2022, growing 6.1% in the second quarter. We will continue to keep a close eye on profitability as 3rd quarter earnings are announced over the next several weeks given the impact of higher interest rates and potentially slowing consumer demand.

Closing Remarks

The markets are still languishing in the mire of this Bear Market and finished another quarter with negative performance. It is still true that markets can’t go down forever and we may have several more months to run before we get the next bull market started. As we are still facing the same headwinds from the last 3 quarters  – inflation, rising interest rates, War in Ukraine and slower economic growth  we need to remain patient. 

The more negative sentiment we see in the media and the majority of the so called market experts the higher the probability is that they are wrong and this bear market may be over sooner than most pundits expect. One of my favorite market legends, Sir John Templeton, was known to say, “If you want to have better performance than ‘the crowd’ you must do things differently from ‘the crowd’”. 

Whatever may come, our Lord is still in control. We remain thankful for the provision, protection, and blessings that we received from our Heavenly Father and are looking expectantly to what God has in store for the 4th quarter and 2023.

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.

Darrell W. Jayroe, CFA, CFP®, CKA®
Senior Portfolio Manager
Darrell Jayroe, CFA, CFP, CKA, serves as Inspire’s Senior Portfolio Manager responsible for leading the firm’s Investment Committee, as well as serving as Lead Portfolio Manager for Inspire’s ETFs and SMA strategies. Darrell has been with the firm since 2016. Prior to joining Inspire, Darrell was a Vice President and Sr. Portfolio Manager for the Bank of Oklahoma trust department for 12 years where he was responsible for managing accounts for high net worth families, trusts, foundations and institutions. Darrell started his career as an investment advisor in 1994 with PaineWebber in Oklahoma City. Darrell received a B.A. and Masters degree from Southern Nazarene University in Bethany, Oklahoma. He is a CFA (Chartered Financial Analyst) charter holder and is a CFP® (Certified Financial Planner®) licensee. He is a member of the CFA Institute and a member and Past President of the CFA Society of Oklahoma. He is also a member of Kingdom Advisors and holds the CKA® (Certified Kingdom Advisor®) designation. Darrell and his wife, Beth, have been married since 1982 and have two daughters, a son in law and three grandchildren.