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

by | Jan 6, 2023 | Stock Market

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. So keep that in mind as the nonfarm payrolls report gets released at 8:30 a.m. Eastern.

Onto our call of the day, which is from Citi, which has been one of the more hawkish of the Wall Street banks in terms of its Fed expectations. Its global strategy team looked around the world and decided to cut its recommendation on the U.S. to underweight from overweight. “Recession reality approaches as Fed hawkishness manifests in signs of slowing activity. We expect a weaker first half, and a stronger second half,” says the Citi team. It has a midyear target on the S&P 500
SPX,
-1.16%
of 3,700, but 4,000 for the year end. “We assume recession concerns and Fed hawkishness will peak during the first half of 2023, with markets anticipating recovery in the second half of 2023.” Not that profitability will be so bad — it’s expecting just a 3% drop in earnings per share for the year, though that’s ahead of consensus expectation. A …

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