After a big post-election surge in 2016, bank stocks have mostly lagged the market so far in 2017. In a new note Monday, Deutsche Bank analyst Matt O’Connor said things will only get worse for banks from here.

According to O’Connor, additional Fed rate hikes will flatten the yield curve, and economic growth is unlikely to accelerate from current levels. As a result, bank net interest income growth is likely to stagnate, O’Connor said, while credit costs drift higher (see O'Connor's track record here).

Given the difficult environment for banks, Deutsche Bank is reducing its exposure to the sector overall and has downgraded the stocks of JPMorgan Chase & Co. (NYSE:JPM) and PNC Financial Services Group Inc (NYSE:PNC) from Buy to Hold.

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When it comes to JPMorgan, O’Connor said rising competition, higher credit card losses and slowing loan growth will make it difficult for the stock to continue to outperform.

He praised PNC for its cost controls, credit and capital management and above-average loan growth but said all of these positives are already priced into the stock.

For now, Deutsche Bank prefers names with turnaround potential and exposure to capital markets. The firm’s top three bank stock picks are Goldman Sachs Group Inc (NYSE:GS), Wells Fargo & Co (NYSE:WFC) and Morgan Stanley (NYSE:MS).

Investors hoping the outlook for bank stocks improves have several key areas to watch.

“Potential drivers of bank stocks (besides macro factors) include: a pickup in M&A (a possibility, in our view), a loosening of credit (unlikely), more aggressive cost cutting (possible, but only if revs are weaker), and more aggressive buybacks/dividends (although this seems to be already assumed),” O’Connor wrote.

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