U.S. equities are out of favor with global strategists at Citi

U.S. equities are out of favor with global strategists at Citi, who have downgraded the asset class because of the potential impact of more Federal Reserve interest rate hikes and stalling corporate profitability.

Citi strategists led Robert Buckland highlighted the potential for weaker earnings per share (EPS) momentum in the U.S., in a note released on Tuesday. EPS is an important metric used by analysts and is used an indicator of a company's profitability.

"Fading EPS momentum and rising Fed funds mean that, after six consecutive years of outperformance, we cut the U.S. to underweight," Citi said in the note.

Despite the downgrade, the analysts still saw some favorable conditions for the U.S. in 2016, including the availability of credit for small businesses. They forecast that EPS for S&P 500 companies would grow by 7.1 percent during the year, as the economy digests stronger dollar and weaker oil prices.

The bank predicted a stronger first half for the S&P 500 this year (with a mid-2016 target of 2,300 points) and then a modest pullback in the second half of the year to 2,200 points.

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