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Message Investing can be simple. At a time of year whenprognostications run rampant, we remind you that assetallocation and time in the market will determine yourresults.*** But beware of these two caveats!Can the Fed navigate the elusive soft landing? Inflationis cooling and employment is holding steady for now.Perhaps this environment will allow the stock market toextend its impressive gains.Equity valuations remain our biggest concern.Uncertainty exists in several areas – recession, inflation,geopolitical risks, political policies – each of which couldcause stocks to hit an air pocket if sentiment changesquickly.Cash turning to trash. With the Fed expected to cut ratesby 2% in 2025, large money market balances could moveinto bonds and equities. The yield curve has steepened inrecent months, increasing the attractiveness ofintermediate term bonds. Diversification is more than prudent; it could also beprofitable.*** Large growth stocks have had the spotlightin recent years. Other asset classes have been neglectedand have the potential for large relative performancesnapbacks.KEY TAKEAWAYSSteve has over 30 years of experience managing money for financial institutions,non-profit organizations, retirement plans and individuals, and has earned theChartered Financial Analyst (CFA) designation. The market’s unique blend ofstatistical and psychological influences sparked Steve’s passion from an earlyage. He combines this experience and passion with a heavy dose of integrityand listening to provide impactful experiences for clients.What are the implications of a softening, yet resilienteconomy combined with afully valued stock market?In this issue, we provideoverviews on these areas:Investing Made Simple ........... Economic Outlook ................. Equity Market Overview &Positioning .............................Inside the Asset Class ............ Fixed Income ......................... Precious Metals ..................... Conclusion ............................ M A R K E TO U T L O O KQ u a r t e r 1 - 2 0 2 5A B O U T T H E A U T H O RSteven Hoffman is solely an investment advisor representative of Great Valley Advisor Group, and is not affiliated withLPL Financial. Any opinions or views expressed by Steven Hoffman are his own and are not those of LPL Financial.2357789

A common question I get this time of year is “whatdo we expect the stock market to return this comingyear?” And since this is our “Market Outlook,” thatseems like a good place to start. There are a lot of smart people out there doing thesame thing. Goldman Sachs, for example, ispredicting a 9% rise in the S&P 500 for 2025, verysimilar to other firms. Can anyone guess what theannual average return is since 1950? Shocker –9%! Perhaps more surprising is the fact that theindex has only returned 8-10% four times duringthat period.Expanding on this thought, studies suggest thatasset allocation (the mix between your stock andbond weightings) can account for more than 90% ofyour returns. So, when one starts making retirementprojections, they assume stock returns of 8-10% andbond returns of about 4-6%. People find comfort inthis time-tested process. And it makes a heck of alot more sense than trying to guess the return of thestock market at the beginning of each year. We generally agree with this concept, as well as theassessment that time in the market is moreimportant than timing the market. However, thereare a couple of important caveats that should beapplied to these statements.The first caveat is that investors don’t haveinvestment horizons that are 70 to 100 years long,thus those long-term averages have less meaning.For many people, the next 10-20 years matter most.For investment horizons of 20 years or less, yourreturn expectations should consider the startingpoint of the market. At a time of year when prognosticationsrun rampant, we remind you that assetallocation and time in the market willdetermine your results. But be ware ofth ese two caveat s!I N V E S T I N G M A D E S I M P L ESince 1900, there have been four distinct bullmarkets and four bear markets. (Data above is fromadvisorperpectives.com) A 20-year investmenthorizon that overlapped one of these periods couldbe hugely impacted by that stretch of time. Saidanother way, one 20-year period could have lookedvastly different than another 20-year period. And thestarting point for your investment horizon had muchto say about whether you were overlapping anextended bull or bear market. And for clarification,we are not talking about your run-of-the-mill one-year corrections.We could easily go along with the crowd of analyststhat are predicting 8-10% returns this year, but twothings prevent us from doing that. One, we have noidea what next year will bring (and neither doesanyone else), and two, the market’s extendedstarting point seems to make a 10% returnstatistically less likely. The market is currentlyfarther away from its 150-year trend line than everbefore (see chart above). 2

At a roughly 30% discount to large caps, small capsmake an excellent place to start building long-termportfolios. Perhaps the strong finish to 2024 is anindication that these stocks will once again becomefavored by the market. Catalysts could includestable economic growth, falling rates, and asteepening yield curve. A narrowing of valuationsbetween small and large stocks could result in largeperformance differences.Skeptics might wonder if there is a fundamentalreason for small caps being on sale. Perhaps theycan’t compete with behemoth companies and thecompetitive market has permanently changed? Well,since relative valuations peaked in 2011, small capshave grown earnings by 10.7% annualized vs. 7.5%for large caps since then – that’s a lot ofcompounded growth over 13 years! At the sametime, however, large cap valuations have increasedand small cap valuations have shrunk. For thesereasons, among others, our portfolios continue toheavily overweight small- and mid-cap stocks.In conclusion, investing can be quite simple. It’s along-term process where selecting an allocation youcan live with through the ups and downs is critical.This process can be enhanced by tilting assetallocations and asset class weightings when As we head into 2025, the U.S. economy faces aunique set of challenges. This section will highlightthe 4 key economic factors at play that could tip thescales in 2025.The U.S. economy is very resilient and hasproduced near-2% growth quite consistently goingback well over 100 years. The few exceptionsinclude the Great Depression, world wars, andCOVID. Going into 2025, the economy seems to be in aprecarious position. The Fed has recently shifted tocutting interest rates, inflation is cooling from a rareand significant spike, the yield curve is un-inverting,two major wars are going on, and we have asignificant change coming in our politicaladministration. Probabilities suggest a soft-landing, but perhapspro-business policies of the new administration (e.g.deregulation, lower energy costs, and tax cuts)could help to avoid a recession in the near termaltogether. That outcome would take some precisenavigation on behalf of the Fed Reserve, as well.3E C O N O M I C O U T L O O KA better question when structuring a portfolio is,“What will the next 10 years bring for the stockmarket, and what are the prospects for bonds andother asset classes over that time?” Also, volatility,not just returns, should be factored into thoseassessments as that could impact your stayingpower in a particular asset allocation.The second caveat is that not all stocks are startingfrom the same point. We will highlight our favoriteexample once again – small-cap stocks. The chartbelow shows the valuation of small-cap stocksrelative to the S&P 500. market segments get stretched far away fromnormal levels. Expectations, especially for planningpurposes, are also important and need to beadjusted according to the market’s current positionand valuations. This process will provide much morevalue than throwing out guesstimates of next year’sS&P 500 returns that are anchored to very long-term averages.Inflation is cooling and employment isholding steady for now. Perhaps thisenvironment will allow the stockmarket to extend its impressive gains?These four potential obstacles,however, may stand in the way.

We have highlighted the ability of inverted yieldcurves to predict recessions many times. Afterbeing inverted for much of the past two years, theyield curve is on the cusp of “un-inverting,” meaningyields on 10-year bonds becoming higher than the3-month or 2-year part of the curve.***In the last three months, 0-3 month yields havefallen considerably and will likely continue to followfuture Fed Funds rates cuts lower. Yields in the 2-10year range have risen by roughly 70 basis points.These moves point toward a steepening, and morenormal, yield curve. An upward sloping yield curveis indicative of an improving economy. While thismay indeed eventually be a positive development,the economy is not out of the woods. As wementioned in last quarter’s Market Outlook, once theyield on 10-year Treasuries eclipses the 2-yearyield, a recession typically occurs within a year.***There are several employment measurements onecan look at. In the past, we have shared the changein nonfarm payroll numbers which has been tepidfor much of 2024. Today, we will look at the JOLTSreport (Job Openings and Labor Turnover Survey).This report provides insights regarding the supply-demand dynamics in the labor market, includingopenings, new hires and quits.4Four obstacles that could prevent that near-perfect navigation in 2025 include:1. LEADING ECONOMIC INDICATORSThis index is comprised of 10 components whichtend to precede changes in economic activity. TheOctober reading came in at the lowest level since2016 – even lower than COVID levels. Historically,declines of this magnitude have resulted inrecessions.2. EMPLOYMENT3. YIELD CURVE “UN-INVERSION”Recent hurricanes have introduced volatility to thedata, but the three-year trend indicates a clearlysoftening economy. With inflation seemingly undercontrol, the focus of the Federal Reserve hasshifted toward employment. Will recent rate cutsbe enough to prevent a recession and keep theworkforce fully employed? History would indicatethat the answer is “not likely.” Recessions comeand go, however, and are not the end of the world.Avoiding a severe recession could be considered asuccess and that scenario does seem likely.

54. GOVERNMENT DEBT LEVELSGovernment spending can add fuel to theeconomic fire. The excessive level of spending inrecent years likely pushed economic output aboveits natural pace at the expense of future growth.According to economist Brian Wesbury at FirstTrust, “the fiscal well is now running dry. Thefederal budget deficit was 6.2% of GDP in FiscalYear 2023 and came in about 6.4% of GDP in FY2024.Also of note, the $7 trillion now invested in moneymarket accounts could soon be looking for a newhome if short-term rates continue to decline asexpected. Short- and intermediate-term bonds willbe an attractive alternative.To put this in perspective, the US did not run abudget deficit of more than 6.0% of GDP for anyyear from 1947 until the Great Recession andFinancial Panic of 2008-09. Not during the KoreanWar, not during the Vietnam War, not during theCold War. But now we did it two years in a rowwithout a war and with the unemployment rateaveraging 3.8%.”In conclusion, while the stock market – our mostaccurate leading indicator of the economy – seemsconfident that a recession will be avoided, severaleconomic measures tell a more cautionary story.Should the stock market have to recalibrate to amore dire economic environment, stock pricescould potentially adjust materially. Given thecurrent spectrum of possibilities, one may wish totilt their risk exposure somewhat lower and ensuretheir portfolios are properly diversified into themore attractive valued areas we have discussed.In this section you'll receive an overview of equity markets and learn how we're positioned in 2025. You’lldiscover how our focus on fundamental metrics like price-to-earnings ratios and thoughtful asset allocationstrategies are designed to balance risk, seize undervalued opportunities, and position your portfolio forsustainable growth across market cycles.Sticking with our simplistic approach to investing, stock market attractiveness comes down to two metrics –price and earnings. That information will allow you to gauge the prospects for long-term returns. E Q U I T Y M A R K E T O V E R V I E W & P O S I T I O N I N GThe chart of the S&P 500 to the right plots theprice-to-earnings (P/E) ratio at ten inflectionpoints (five peak and five trough) for the S&P500 over the past 28 years. Averaging thepeak P/E ratios, including the current value,one arrives at 20.6. Conversely, the averagetrough P/E is 13.9.Given the range of 13.9 to 20.6 for majorinflection points, and given the current readingof 22.2, you might better appreciate ourreluctance to predict 9% returns for thecoming year. Admittedly, valuations have verylittle to do with one year returns and that’s whyour focus will always be on longer investmenthorizons.

While its possible for valuations and sentiment toextend higher in 2025, much like in 2024, thehigh readings will pose headwinds for stock pricesover longer periods of time.Our portfolios continue to de-emphasize the largegrowth asset class in favor of small, mid andinternational stocks, as well as alternative assetclasses such as precious metals. The historically large valuation discounts for theselatter asset classes make for compelling long-termplays. Index funds have historically provided anefficient way to obtain market diversification. Currently, however, some indexes have becomeconcentrated in the top holdings and do not properlyserve the purpose for which they were intended. It isnow more important than ever to drill down into eachfund to fully understand the make-up of your overallportfolio.For this reason, our portfolios have deviated fartherfrom the benchmarks than perhaps ever before. Asevidence of this variance, the price-to-cash flow ofour equity portfolio is at a 30% discount compared tothe benchmark. This means that for every dollar ofcash flow that our stocks generate, we are paying30% less than what the indexes are paying for theirholdings.Fundamentals-weighted holdings such USMF, QEFA,and DGS provide much of the advantage over thetraditional market-cap weighted benchmarks. DGS,an emerging market fund, focuses on small-capstocks which is a stark contrast to large Chinesetechnology companies that dominate most emergingmarket funds.The fundamental strength of our holdings shouldprovide better risk-adjusted returns, especially in theevent of market weakness. Few seem to care aboutrisk levels in a rising market, and that is exactly howbubbles are formed. We remain disciplined in ourapproach and will always consider valuations as webuild our portfolios. When the market is less judiciousand the junk rallies, we may underperform.Over the full market cycle, we are confident that ourportfolios will deliver strong results and a smootherjourney. Also, despite our emphasis on quality, ourportfolios have performed in lockstep with thebenchmarks during a strong 2024. All in all, webelieve the portfolios are generating comparablereturns with a fraction of the risk.Equity valuations remain our biggestconcern. Uncertainty exists in severalareas – recession, inflation,geopolitical risks, political policies –each of which could cause stocks tohit an air pocket if sentiment changesquickly.6Again, the purpose of these valuations is not to timethe market, but to tweak portfolios based on expectedreturns for the various asset classes.Confirming the high valuations is the extremely highsentiment reading (see chart below). Consumers arecurrently more optimistic about stock returns for thenext 12 months than at any time in the past 30 years.Sentiment is a contrarian indicator, so high readingsdo not bode well for future returns as optimism willrevert to more normal levels eventually.

For the first time in history, this asset class has been dethroned by it's non-dividend paying counterpart.In this edition of “Inside the Asset Class,” let’s explore the historical performance of this asset class, whythey still matter, and how we incorporate them into strategies for long-term growth for our clients.For much of stock market history, dividend payers have outperformed their counterparts, as illustrated inthe 20-year rolling data chart below. In this post dot-com era, however, non-dividend payers have out-performed for the first time in history.To some extent, the labels of dividend payers, small caps, value stocks, growth stocks, etc, overshadowwhat really matters – the price you are paying relative to a company’s future stream of cash flows. 7I N S I D E T H E A S S E T C L A S S : D I V I D E N D - P A Y I N G S T O C K SThis update explains key factors that could affectbond prices in 2025 and the importance of astable, benchmark-aligned approach. We'll alsoexplore how interest rates and default risks impactyour fixed income investments.The reason reversion to the mean works, in ouropinion, is that eventually the market abandonscertain short-term biases and sees the worldthrough that true economic lens.Warren Buffet explained this well when he said,“The very term “value investing” is redundant.What is “investing” if it is not the act of seekingvalue at least sufficient to justify the amount paid?Consciously paying more for a stock than itscalculated value – in the hope that it can soon besold for a still-higher price – should be labeledspeculation.” Using this lens, it becomes compelling to buy more small caps than large caps, more value stocks thangrowth stocks, perhaps more international than domestic. Should the market wake up tomorrow and shedits biases and just see prices and cash flows for each asset, a reversion to the mean would provideexcellent returns for the properly priced stocks. Also, the market rarely reverts to mean and stops, ittypically overshoots the mark as new classes of stocks become market favorites.It is for these reasons that we incorporate fundamentals-weighted funds into our models. These strategiesthrow labels aside and weight their stock holdings based on the metrics that drive long-term stockreturns. These holdings are largely responsible for our ability to hold a basket of stocks selling at a 30%discount (price/cash flow) compared to market-cap weighted benchmarks. An added benefit to thesestrategies is that they have a built-in rebalancing mechanism that continuously sells the stocks that getexpensive and adds the ones that have become more attractive.F I X E D I N C O M ETwo primary metrics drive bond prices: Changes in interest rates1. Expectations of defaults2.In terms of interest rates, there is a lot going on inthe bond world as highlighted in our discussionabout the yield curve. Our general philosophy is toremain boring, meaning in close alignment with thebenchmarks, for two reasons.

We continue to believe that diversification is moreimportant than it has been in a very long time. Aspart of that diversification, our models includegold/silver exposure (80% gold/20% silver).After a four-year trading range, metals broke out inearly 2024. Metals have been outperforming theS&P 500 going back to late 2022. It is encouragingthat even in a robust bull market, diversification intometals has actually enhanced performance.We believe there is more upside potential in metalsand find them especially attractive relative to a fullypriced stock market.With the Fed expected to cut rates by2% in 2025, large money marketbalances could move into bonds andequities. The yield curve hassteepened in recent months,increasing the attractiveness ofintermediate term bonds. Regarding default expectations, the bond market ispricing in optimism similar to the equity market.Credit spreads (the increased yield you get to buyriskier bonds) are very narrow. This means thatbond investors expect low defaults, which implies astrong economy. Risky bonds tend to act much likestocks during periods of economic turmoil (meaningthey go down significantly in price). For that reason,we keep a sleeve of Treasury bonds which serve asa counter-balance to the riskier parts of the portfolio.The chart above shows that credit spreads on highyield bonds have not been this low since 2007, rightbefore the “great recession.” The spread grew to20% during that period, resulting in very large lossesfor bond holders. So, just because spreads are tightdoes not mean there is no risk. It just means youare not being paid for much risk.8First, fixed income portfolios are designed to providestability and income. Incorporating guesses aboutinterest rates would only add to the volatility.Second, we have yet to find anyone consistentlygood at predicting interest rates. That includes allthe top economists.With that backdrop, the duration of our portfoliosremains between 5-6 years. This implies that a 1%change in interest rates will result in about a 5%change in bond prices. On top of those pricefluctuations, we are capturing close to 5% in interestpayments. So, if rates remain flat, your return will beapproximately 5%. If rates drop 1% your return willapproximately 10%.P R E C I O U S M E T A L SDiversification is more than prudent;it could also be profitable. Largegrowth stocks have had the spotlight inrecent years. Other asset classes havebeen neglected and have the potentialfor large relative performancesnapbacks.***Asset allocation does not ensure a profit or protectagainst a loss. There is no guarantee that a diversifiedportfolio will enhance overall returns or outperform anon-diversified portfolio. Diversification does notprotect against market risk. Bond yields are subject tochange. Certain call or special redemption featuresmay exist which could impact yield. Governmentbonds are guaranteed by the US government as to thetimely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

WI | ALTOONA903 S Hillcrest Pkwy715.598.7011MN | MAHTOMEDI748 Wildwood Road651.447.2235At North Point Advisor Group, we focus on processover predictions. Markets and economies ebb andflow, but allocations will largely dictate long-termresults. When certain assets get relatively expensive,we trim. When they get relatively cheap, we add. Itjust so happens that right now the differences invaluations from one asset class to the next are muchwider than normal. This is the type of environment where activemanagement has the potential to add the most value,and it is also why our portfolios look much differentthan the benchmarks currently. There are greatopportunities now, and there will be more in thefuture. The process will navigate us through thesechanges.We appreciate your business and look forward tonavigating your life challenges and opportunities withyou. Thanks for another great year!At N or th P oi nt A dv is or G ro up ,we’re dedicated to providingcomprehensive financialguidance, tailored to yourunique goals, and presented ina way that’s approachable. We’re by your side every stepof the way with proactive stepsand insights, ensuring eachtouchpoint moves you forwardand empowers you to make themost of the success you’veworked so hard to build.Want to chat with your advisorabout the information you justread? Get in touch anytime!9C O N C L U S I O N/ N o r t h P o i n t A d v i s o r G r o u p/ c o m p a n y / n o r t h p o i n t a d v i s o r g r o u pw w w . n o r t h p o i n t a d v i s o r g r o u p . c o m