Strategist Sees Lower Rates and Inflation in 2023, Recommends Small Caps and International Dividend Stocks

Strategist Sam Stovall expects interest rates and inflation to trend lower in 2023, leading the Fed to pause rate hikes.

Stovall forecasts rates averaging around 470 basis points in Q4 2022 and 445 basis points in 2023.

Stovall recommends increasing exposure to mid and small cap stocks trading at discounts and dividend-paying international stocks.

For earnings season, Stovall sees diversified bank earnings up but regional banks down 26%.

Stovall will watch for signals on credit quality, expecting challenges in retail real estate.