b'A Closer Look: The US Economy A Closer Look: The US EconomyShifting Sands in Financial Markets Shifting Sands in Financial MarketsBY: ERIC POST BY: ERIC POSTWhat you need to know: 2023 will be fundamentally different thanWhat you need to know: 2023 will be fundamentally different than 2022; the rearview mirror will not be helpful2022; the rearview mirror will not be helpfulWhen they first come to ITR Economics, many of our clients have When they first come to ITR Economics, many of our clients have fallen prey to a common pitfall: using the rearview mirror to mfallen prey to a common pitfall: using the rearview mirror to make forward- ake forward-looking decisions. It is human nature, but it is not the best business practice or investment approach. With that in mind, we w ill dive into four looking decisions. It is human nature, but it is not the best business practice or investment approach. With that in mind, we will dive into four hot-button financial topics: inflation, commodity prices, intereshot-button financial topics: inflation, commodity prices, interest rates, and the stock market. t rates, and the stock market.INFLATION INFLATIONInflation averaged 4.7% in 2021 and 8.0% in 2022. It would be eaInflation averaged 4.7% in 2021 and 8.0% in 2022. It would be easy to think inflation will stay elevated in 2023, but our analysis shows significant sy to think inflation will stay elevated in 2023, but our analysis shows significant easing in inflationary pressures is probable. We are forecastingeasing in inflationary pressures is probable. We are forecasting inflation to average 3.6% for 2023, dipping back into the 2%s i inflation to average 3.6% for 2023, dipping back into the 2%s in the second half ofn the second half of the year. The bottom line is that by the second half of this year, we will be in a very different inflation environment than tha t of 202122.the year. The bottom line is that by the second half of this year, we will be in a very different inflation environment than that of 202122.COMMODITIES COMMODITIESPrices of most commodities will move lower in 2023, with the spPrices of most commodities will move lower in 2023, with the specific supply-demand dynamics determining the extent of the pullecific supply-demand dynamics determining the extent of the pullback. Oil pricesback. Oil prices averaged $95 per barrel in 2022, a 39% increase from the 2021 average. We expect relief at the pump in 2023, with oil forecaste d to average averaged $95 per barrel in 2022, a 39% increase from the 2021 average. We expect relief at the pump in 2023, with oil forecasted to average $76 this year, 20% below the 2022 average. Prices will bounce a$76 this year, 20% below the 2022 average. Prices will bounce around the low $70s in the second half of 2023. Steel scrap pricround the low $70s in the second half of 2023. Steel scrap prices will come downes will come down 28% this year from their 2022 average. Copper will come down a 28% this year from their 2022 average. Copper will come down a comparatively scant 8% as the end of Chinas zero-COVID policy comparatively scant 8% as the end of Chinas zero-COVID policy blunts theblunts the downward momentum in the global economy. downward momentum in the global economy.INTEREST RATES INTEREST RATESOur analysis suggests that US short-term interest rates, as setOur analysis suggests that US short-term interest rates, as set by the Federal Reserve, will cease their rise around MarchMay by the Federal Reserve, will cease their rise around MarchMay as the above-as the above-described easing in inflationary pressures enables the Fed to tadescribed easing in inflationary pressures enables the Fed to take its foot off the interest rate gas pedal. Long-term interest rates are likely to ke its foot off the interest rate gas pedal. Long-term interest rates are likely to move generally lower in 2023, with more pronounced decline in the second half of the year as the economy heads into a 2024 rece ssion.move generally lower in 2023, with more pronounced decline in the second half of the year as the economy heads into a 2024 recession.STOCK MARKET STOCK MARKETWe do not forecast the stock market, and for good reason! However, we do study the market closely as part of our ITR Optimizer process. That We do not forecast the stock market, and for good reason! However, we do study the market closely as part of our ITR Optimizerprocess. That process enabled the Optimizer portfolio to avoid most of the 20process enabled the Optimizer portfolio to avoid most of the 2022 market decline by favoring defensive-oriented or inflation-re22 market decline by favoring defensive-oriented or inflation-resistant sectors;sistant sectors; the Optimizer portfoliomanaged by Bellwether Wealthwas down 3% for 2022 versus the S&P 500s 18% decline. At some point t his year, the the Optimizer portfoliomanaged by Bellwether Wealthwas down 3% for 2022 versus the S&P 500s 18% decline. At some point this year, the market will likely come to terms with the 2024 recession that we are forecasting and shift its focus toward the subsequent rec overy. Do not get market will likely come to terms with the 2024 recession that we are forecasting and shift its focus toward the subsequent recovery. Do not get caught flat-footed; 2022s market pessimism should not color youcaught flat-footed; 2022s market pessimism should not color your long-term thinking. r long-term thinking.SUGGESTED TAKEAWAYS SUGGESTED TAKEAWAYS1.Look to put through your price increases sooner rather than later.1.Look to put through your price increases sooner rather than later.2.If possible, delay transportation contracts, raw commodities purchases, and getting locked into interest rates.2.If possible, delay transportation contracts, raw commodities purchases, and getting locked into interest rates.nt for the disparate impact of inflation and interest rate pressnt for the disparate impact of inflation and interest rate pressures; reach out3.Consider the stock market on a sector-by-sector basis and accou3.Consider the stock market on a sector-by-sector basis and accou ures; reach outto Bellwether Wealth or your financial advisor if you need help.to Bellwether Wealth or your financial advisor if you need help.24 ECONOMIC OUTLOOK (continued from pg 23)A Closer Look: The US EconomyShifting Sands in Financial Markets ITReconomics.com 2023 All Rights Reserved 4 ITReconomics.com 2023 All Rights Reserved 4BY: ERIC POSTWhat you need to know: 2023 will be fundamentally different than 2022; the rearview mirror will not be helpfulWhen they first come to ITR Economics, many of our clients have fallen prey to a common pitfall: using the rearview mirror to make forward-looking decisions. It is human nature, but it is not the best business practice or investment approach. With that in mind, we will dive into four hot-button financial topics: inflation, commodity prices, interest rates, and the stock market.INFLATIONInflation averaged 4.7% in 2021 and 8.0% in 2022. It would be easy to think inflation will stay elevated in 2023, but our analysis shows significant easing in inflationary pressures is probable. We are forecasting inflation to average 3.6% for 2023, dipping back into the 2%s in the second half of the year. The bottom line is that by the second half of this year, we will be in a very different inflation environment than that of 202122.COMMODITIESPrices of most commodities will move lower in 2023, with the specific supply-demand dynamics determining the extent of the pullback. Oil prices averaged $95 per barrel in 2022, a 39% increase from the 2021 average. We expect relief at the pump in 2023, with oil forecasted to average $76 this year, 20% below the 2022 average. Prices will bounce around the low $70s in the second half of 2023. Steel scrap prices will come down 28% this year from their 2022 average. Copper will come down a comparatively scant 8% as the end of Chinas zero-COVID policy blunts the downward momentum in the global economy.INTEREST RATESOur analysis suggests that US short-term interest rates, as set by the Federal Reserve, will cease their rise around MarchMay as the above-described easing in inflationary pressures enables the Fed to take its foot off the interest rate gas pedal. Long-term interest rates are likely to move generally lower in 2023, with more pronounced decline in the second half of the year as the economy heads into a 2024 recession.STOCK MARKETDedicated to keeping its members at the forefront in their industryWe do not forecast the stock market, and for good reason! However, we do study the market closely as part of our ITR Optimizer process. That process enabled the Optimizer portfolio to avoid most of the 2022 market decline by favoring defensive-oriented or inflation-resistant sectors; the Optimizer portfoliomanaged by Bellwether Wealthwas down 3% for 2022 versus the S&P 500s 18% decline. At some point this year, the market will likely come to terms with the 2024 recession that we are forecasting and shift its focus toward the subsequent recovery. Do not get caught flat-footed; 2022s market pessimism should not color your long-term thinking.SUGGESTED TAKEAWAYS1.Look to put through your price increases sooner rather than later.2.If possible, delay transportation contracts, raw commodities purchases, and getting locked into interest rates.3.Consider the stock market on a sector-by-sector basis and account for the disparate impact of inflation and interest rate pressures; reach outto Bellwether Wealth or your financial advisor if you need help.ITReconomics.com 2023 All Rights Reserved 4The InsulatorFebruary 2023'