Citi has just cut its rating on U.S. stocks to underweight. Here's why and what it prefers.

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Citi's global strategy team looked around the world and decided to cut its recommendation on the U.S. to underweight from overweight.

While leading indicators seem to be suggesting both that the U.S. economy is headed for a downturn and that price pressures are cooling, the Federal Reserve seems determined to wait until prices fall further and the typically lagging U.S. jobs market cools off before relenting from its rate-hike campaign.Onto... While leading indicators seem to be suggesting both that the U.S.

What Citi is now more optimistic about is Continental Europe, which it lifted to overweight from neutral. “Cheap valuations already discount much bad news. Economies should stabilize and rates peak later in the year,” says the Citi team, which already was overweight on U.K. equities. The buzz Economists polled by The Wall Street Journal expect the Labor Department to report nonfarm payrolls growth slowed to 200,000 from 263,000 but for the unemployment rate to stay at 3.7%. The range of sell-side forecasts goes from 130,000 to 350,000. Average hourly earnings are forecast to ease to 0.4%.

Bank of America BAC and JPMorgan Chase JPM were both downgraded to hold from buy at Deutsche Bank, which said new lows for bank stocks BKX seem likely.

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