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Quarterly Review & Commentary
Quarter Four · Two Thousand and Twenty Two

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



SENIOR PORTFOLIO MANAGER





For institutional use only
Economic Summary

In the final quarter of 2022, the US economy turned out to be better than many had expected. Or maybe better said, “less worse” than many had expected!

Estimates are that during the final quarter of 2022, U.S. Real (inflation-adjusted) Gross Domestic Product (GDP) rose slightly to 0.5% (annualized). This comes on the heels of a fairly significant jump (2.9%) in the third quarter and outright declines in the first two quarters of the year. Despite those two consecutive quarters of negative economic growth earlier in the year, an official recession, as determined by the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), was not declared in 2022.

Looking forward, the consensus is that weakness in the US economy will continue to spread in 2023, with outright declines in Real GDP likely to be experienced in the first three quarters. Overall growth for the 2023 calendar year is projected to come in at 0.0%. Therefore, an official proclamation of a recession in 2023 is highly probable. Against this backdrop, for many investors, this potential recession is a foregone conclusion; therefore, with the consequent decline in earnings to come, they have been revaluing publicly-traded equities downward over the past year.

Certainly, a major contributing factor to this stagnant growth environment is the aftereffect of the surge in economic activity that came with the post-pandemic reopening with inventories being drawn down, supply chains restarting, and hiring surging. Also, sadly, the Russian aggression in Ukraine continues and with that, its disruptive effects on the global energy and agricultural markets. Beyond that, the effects of the significant increase in global interest rates are being felt throughout the economy, especially in interest-rate sensitive sectors such as housing and construction. Lastly, while for much of the year, the strong U.S. dollar was a significant headwind for domestic exporters, that strength began to dissipate in the fourth quarter.

Along with the not-so-bad news about economic growth in the fourth quarter of 2022, the inflationary environment turned for the better. While still unacceptably high, inflation has begun to subside. The most recent reading came in at 7.1% (12-month Consumer Price Index change, November 2022), down from 9.1% in June 2022, a four-decade high.

In response to the progress in its fight against inflation, in the fourth quarter of 2022, the Federal Reserve dialed back the scale of its Federal Funds rate increases. While it had been raising rates 75 basis points every FOMC meeting cycle, at the most recent December meeting, the members voted for just a 50 basis point increase (to 4.5%). While many investors keep wishing fancifully for a “pivot” in which the Federal Reserve reverses course and begins to cut rates, a more likely scenario is that future increases are scaled back to just 25 basis points until a “terminal rate” is reached (5%?). Then, overnight rates will remain at that level until inflation permanently subsides around the Fed’s 2% target level.

Meanwhile, despite anemic economic conditions, the labor market remains remarkably resilient. The Unemployment Rate for December came in at 3.5%, equaling a five-decade low, and average hourly earnings grew 4.6% over the prior 12 months. While good for workers, this does not bode favorably for overall economic growth and taming inflation as the labor participation rate (62.3% in December) remains stubbornly low when compared to prior decades.

As if the economy itself did not present enough uncertainties, U.S. politics took it to another level in the fourth quarter. The midterm elections in November did deliver the House of Representatives to the Republican party, but not as decisively as had been expected. The Senate remained in Democratic hands. That outcome, along with the Democratic White House, means a divided government in Washington, D.C. Historically, investors have viewed such a balance of power in Washington DC favorably as it guards against significant policy and regulatory changes. However, given the rampant divisiveness between and even within parties, it is possible that issues could arise in coming to an agreement on debt ceiling increases which could lead to government shutdowns and even potentially impact on the nation’s ability to service its debt obligations.

Globally, investors face similar conditions to those in the U.S.: slowing growth, stubbornly high inflation, and rising interest rates. Continued dissipation in the strength of the U.S. dollar, the denominator for global commodities markets, would serve to ease inflation pressures abroad as well as serve as a favorable tailwind for investors' investments in foreign-currency based assets.

Investors need to focus primarily on their financial goals, ignoring the noise of day-to-day events, and invest accordingly. A recession is likely, but it might not be as deep or long as some fear. Also, now that the inflation “toothpaste” is out of the “tube,” it will be difficult to put back. So, while investors can expect inflationary pressures to subside, it may be quite some time before it gets back down to levels viewed as “normal.” As always, investing with one’s head rather than with one’s emotions is best!

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 fourth quarter brought back the rally that began in mid-June as the markets tried to retest those lows in early October. The S&P 500 regained some of its momentum until the end of November, along with the US mid-cap and small-cap markets, until all turned south for December. Despite the poor showing in the last month of the year, all three finished in positive territory for the quarter but paled in comparison with the brightest spot in the 4th quarter, which was the International market. Outperforming the US markets dramatically, the International and Emerging markets turned in a quarterly return of 16.53% vs. all the US markets with single-digit returns. The high inflation numbers, Russia's continuing war against Ukraine, and a slowing economy kept us in the “Correction Process.” Even if we have a few more months before we can declare that a new Bull Market has begun, it is starting to appear that the Bear market is losing much of its strength. That being said, we believe it’s time to start believing that the opportunity for positive returns over the next 12 to 18 months could be higher than more downside risk. Although there are pundits out there that are still highly pessimistic, one fact remains – all bear and bull markets eventually come to an end.

(Source: Bloomberg)

The past 12 months have given us not only the correction we have been expecting since the Pandemic recovery but ushered in a simultaneous bear market in global stocks and bonds. The good news is that the worst year in the equity and bond markets together is behind us, but the bad news is that the road ahead could be bumpy for the first half of 2023. We still have the potential of 2 to 3 more interest rate increases, the stubbornly high inflation rate, and an economy expected to slow to the point that confirms the much-anticipated recession. 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 -18.13%; the S&P 400 Mid-cap index was down -13.10%, the S&P 600 Small-cap index was down -16.15%, and the international markets fell -14.40%. 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 the financial media, “contrarians” believe this could signal that the bottom may be in and has been tested in June and again in October.

(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 0.60% 0.40%
CPI MoM 12/13/2022 08:30 Nov 0.30% 0.10%
CPI MoM 1/12/2023 08:30 Dec -0.10% -0.10%
(Source: Bloomberg)

Inflation rose to 0.4% (Month over Month) in October, beating expectations of 0.60%, and fell to 0.10% (Month over Month) in November. The expectation is for the month-over-month number in December to be 0.00% and will be released on January 12th. 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 12 to 18 months.

(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 2.2% 2.6%
GDP Price Index 11/30/2022 08:30 3Q S 2.8% 2.9%
GDP Price Index 12/22/2022 08:30 3Q T 2.9% 3.2%
(Source: Bloomberg)  (A= Advance; S= Second: T= Third)

GDP growth came in stronger than the initial expectation of 2.2% for the 3rd quarter, with an actual  3.2% for the quarter in the third revision. The debate among economists and market pundits changed during the 4th quarter from whether we are already in a recession to how deep the recession will be in 2023. Although there has been no definite proclamation of a recession yet, it is highly likely we will hear an announcement sometime in the first half of 2023.

(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 3.6% 3.7%
Unemployment Rate 12/2/2022 8:30 Nov 3.7% 3.7%
Unemployment Rate 1/6/2023 8:30 Dec 3.7% 3.5%
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 292K
Nonfarm Payrolls (Change) 11/4/2022 8:30 Oct 197K 261K 269K
Nonfarm Payrolls (Change) 12/2/2022 8:30 Nov 195K 263K 263K
Nonfarm Payrolls (Change) 1/6/2023 8:30 Dec 207K 223K 263K
Source: Bloomberg

The Unemployment rate ticked down to 3.6% in October after spiking to 3.7% at the end of the 3rd  quarter and jumped back to 3.7% in November. It is possible we could see the unemployment start to rise in the 1st quarter of 2023 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 10 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
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 4.00 12 0
FOMC Meeting 12/14/2022 4.50 12 0
Source: Bloomberg

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, September, and November. With some signs that the interest rate increases are starting to slow the high inflation numbers, the Federal reserve slowed their pace from 75 bps steps in the past four meetings to an increase of only 50 bps in their final meeting of 2022. Based on Chair Powell’s recent comments, we should expect a rate hike of 0.25% at both the February and March meetings, with a potential terminal rate of 5%. 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)

Performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For the most recent month-end performance please call 877-658-9473. For standardize performance, click on the fund link below.

Inspire 100 ETF [NYSE: BIBL]
  • BIBL outperformed the S&P 500 Index by 62 bps as the correlation to the large-cap market narrowed on the broad-based rally of the US large-cap market in the 4th quarter. 
  • BIBL is underweight in the Communications, Discretionary, Staples, and Financials sectors relative to the S&P 500. Conversely, BIBL is overweight in the Industrials, Technology, Materials, Healthcare, and Real Estate sectors relative to the S&P 500 and in line with Utilities and Energy.
  • 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 value and growth exposure.

(Source: Bloomberg)

Performance data as of
12/31/2022
. 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 4th Quarter by only 211 bps.
  • Global markets mirrored the US large-cap market as both rallied off of the support level by testing the lows of mid-June in mid-October, but BLES outperformed nicely.
  • We still believe that the tilt to the smaller end of the large-cap spectrum of BLES will continue to show favor when the economic numbers start to improve in the next 6 to 12 months.

(Source: Bloomberg)

Performance data as of
12/31/2022
. 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. 
  • FDLS outperformed the MSCI Global Multi-Factor ETF by 77 bps, as well as outperforming the S&P 500 Index by 370 bps.
  • We believe that the diversified allocation of FDLS to US large, mid and small-cap, international, and emerging markets stocks and the disciplined multi-factor approach will complement our other ETFs when the next bull market starts.
(Source: Bloomberg)
Performance data as of
12/31/2022
. 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 Faithward Mid Cap Momentum ETF [NYSE: GLRY]
  • This past year was a challenge to investors of almost all themes and asset classes but proved better than some anticipated, given the risks that could have been realized.  Momentum was no exception in Q4 with the aggressive changes in sentiment and volatility.
  • With the retirement of FEVR, GLRY becomes the pure-play momentum BRI fund.  Mid-cap companies will continue facing high borrowing rates in 2023, but they should be removed from some broad, large-cap risks, such as further political scrutiny and different workforce sizes.
  • The momentum market's correlation remains lower than expected, as healthcare companies (non-BRI) and energy (low credit quality) remain significant contributors. Momentum is still present in other sectors, though, and the FEVRR process continues to find opportunities across the investable universe.

—Matt Melott, Manager

(Source: Bloomberg)
Performance data as of
12/31/2022
. 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 -127 bps and +34 bps, respectively, for the 4th quarter.
  • The small and mid-cap markets re-tested the lows we saw in mid-June in early October before finding support and climbing until the end of November.  The rally stalled, ending the year on negative momentum but with positive performance for the 4th quarter.
  • The equal weighting of the 500 stocks in ISMD was in line with the market cap weighting of the small and midcap indexes showing that the correlation in the small and midcap markets and ISMD remains strong.
(Source: Bloomberg)
Performance data as of
12/31/2022
. 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]
  • RETURNED +0.81% in the 4th quarter.  The fund underperformed the S&P Target Risk Moderate TR Index benchmark for the quarter, which returned +5.15%.
  • We attribute this performance for the quarter to our positioning of the fund in a conservative allocation with regard to the stock market and other equity asset classes. Due to our long-term trend indicators staying negative through the 4th quarter, we did not increase our allocation to equities and thus did not capture the market increase for that period.
  • The first adjustment that we made to the allocation of the fund this quarter was to reduce our stock allocation from 10% to 5% at the beginning of the quarter. 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.
  • Moving forward, we will continue to monitor these allocations. As our indicators improve for US Large Cap stocks (Inspire 100 Index), 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. We may continue holding this more conservative allocation until things in the US economy and equity markets decide to change course. We also anticipate adding an allocation to gold back into the mix as the trend for that asset class seems to be improving into 2023.

—Jacob Chandler, Manager

(Source: Bloomberg)
Performance data as of
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. 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 up +17.09 in the 4th quarter outperforming the S&P International 700 TR Index return of +16.53%, an outperformance of 56 basis points.
  • Although highly correlated, the outperformance is most likely due to the geographic underweight to China as we have chosen not to hold any stocks in China due to the human rights abuses by the CCP.
  • Another factor that may allow for the outperformance of WWJD is that it is equally weighted, and the index is market cap weighted, and WWJD holds 200 positions vs. the index with 700 positions.
(Source: Bloomberg)
Performance data as of
12/31/2022
. 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

SPLIT PERSONALITY  -  the yield curve spiked higher on the shortest part of the curve while falling in the intermediate area and rising for the longest maturities confusing the fixed-income markets. Interest rates for the 1-month to 2 years maturities and the 10 to 30 years maturities all went up in the 4th quarter. At the same time, the 3, 5, and 7-year bonds fell as the Federal Reserve let up on the gas pedal slightly of the interest rate increases with jumps of 75 bps in November but only 50 bps in December.

As of the end of the 4th quarter, the 1-year US Treasury yield increased from 3.989% to 4.710% (a 72 bps increase) vs. the 10-year US Treasury, which rose from 3.832% to 3.877% (for a 4.5 bps rise). Analysts failed to predict that the 10-year rate would hit 4.5% by the end of 2022.

The 2-year U.S. Treasury yield increased from 4.281% to 4.429%, the 5-year yield fell from 4.092% to 4.005% (a decrease of 8.7 bps), and the 30-year treasury rose from 3.779% to finish the quarter at 3.966% (an increase of 18.6 bps).

The probability of a recession is still high as the economy is slowing. However, with strong employment numbers and consumer spending, a recession is still avoidable if the Federal Reserve will not push their rate increase process too far.

(Source: Bloomberg 12-30-2022)
Inspire Corporate Bond ETF [NYSE: IBD]
  • IBD was up 2.17% in the 4th quarter, slightly underperforming the fixed income benchmark of the Bloomberg Barclays US Intermediate Credit Index, which was up 2.52%.  
  • The unusual gyrations in the yield curve caused positive performance for intermediate bonds in Q4 but hurt the bonds on the shortest and longest ends of the yield curve.
  • As economic growth continues to slow and with the increased probability of a recession in the new year, the yield curve could likely shift parallel to the upside in the 1st quarter.
(Source: Bloomberg)
Performance data as of
12/31/2022
. 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

It has become challenging to understand where things stand regarding the Russian/Ukrainian war, especially given the media’s conflicting reporting. Russia has ratcheted up its military operations since October, while Ukrainian President Zelenskyy has ratcheted up his rhetoric (even suggesting that Ukraine will take back Crimea, which it lost to Russia in 2014). It seems certain that Russia is determined to continue its course, and some say it is preparing to launch an unbridled offensive soon to end the war. It is reported that Putin is orchestrating an increase of troops in Belarus (north of Ukraine) while at the same time continuing his troop build-up on Ukraine’s eastern border. Some suggest that Russia now amassed nearly 700,000 soldiers versus only 100,000 for Ukraine. The Russian onslaught could pave the way for sooner negotiations with Ukraine; however, as long as Ukraine keeps receiving military support (primarily from the US), the conflict could drag on, which will continue to impact the global economy and the capital markets. From a humanitarian standpoint, many observers are worried about the infrastructure damage in Ukraine, making the situation more pronounced heading into the colder winter months.

Inflation and Money Supply

The November CPI month-over-month reading was 0.1%, coming in below the consensus gain of 0.3%. Year-over-year inflation fell from 7.7 to 7.1%. Although inflation has come down, it will remain elevated until the Fed consistently gets the growth of the money supply (M2) under control, as that tends to be a leading indicator of inflation.

The Consumer and GDP

Revised third quarter GDP came in at 3.2%, coming on the heels of negative growth rates for the first and second quarters. Although the 3Q datum supports the view that we are probably not quite in a recession, it doesn’t mean everything is rosy. Most of the GDP growth was led by net exports, which should not be as strong going forward. Slowing growth could worsen, especially if personal consumption, business investment, and home building continue to slow/decline going into 2023. We will continue to keep a close eye on growth figures going forward.

Corporate Profits

In last quarter’s commentary, we discussed how corporate earnings had been rising in 2022, but there are signs that earnings are starting to fall. Indeed, profits declined modestly in Q3 (versus Q2), and we expect profits to continue to fall, particularly given the impact of higher interest rates and potentially slowing consumer demand. As a result, we will continue to keep a close eye on corporate earnings, as this will impact equity performance going into 2023.

Closing Remarks

The markets have started to show signs that this Bear Market may be ready to hibernate as we finished the year with the only quarter in 2022 with positive performance. Although we are glad to see a positive quarter, we may have several more months to run before the next bull market starts. As we are still facing the same headwinds from the last four quarters  – inflation, rising interest rates, War in Ukraine, and slower economic growth we need to remain patient and focused on long-term opportunities.

Beware of the negative sentiment we see in the media and the majority of the so-called market experts, as they could be wrong, and this bear market may be over sooner than most pundits expect.  By the time most people feel good about the stock market again, the next bull market will already be several months old.

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 2023.

We thank each of you for bringing Glory and Honor to our Heavenly Father and our Savior Jesus Christ 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.
There is no guarantee that the Funds will achieve their objective, generate positive returns, or avoid losses. Before investing, consider the funds’ investment objectives, risks, charges and expenses. To obtain a prospectus which contains this and other information, call 877.658.9473, or visit www.inspireetf.com. Read it carefully. The Inspire ETFs are distributed by Foreside Financial Services LLC., Member FINRA. 

Inspire and Foreside Financial Services LLC are not affiliated. 

ETF shares are not redeemable with the issuing fund other than in large Creation Unit aggregations. Instead, investors must buy or sell ETF Shares in the secondary market with the assistance of a stockbroker. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling. The NAV of the Fund’s shares is calculated each day the national securities exchanges are open for trading as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time (the “NAV Calculation Time”). Shares are bought and sold at market price (closing price) not NAV. Market Price returns are based upon the official closing price on the listing exchange (NYSE ARCA) at 4:00 p.m. ET when NAV is normally determined for most Inspire Funds, and do not represent the returns you would receive if you traded shares at other times.

An active secondary market for the Fund’s shares may not exist. Although the Fund’s shares will be listed on an exchange, subject to notice of issuance, it is possible that an active trading market may not develop or be maintained. There is no guarantee that distributions will be paid. 

Investment advisory services offered through Inspire Investing, LLC, a Registered Investment Advisor with the SEC. 

National Admin Office: 3597 E Monarch Sky Ln, Suite 330 Meridian, ID 83646; Phone: (877)658-9473; Email: admin@inspireinvesting.com 
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Note: Giving can and does change to meet changing ministry needs. Total lifetime giving $243,372 as of 12/31/23.

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