(Bloomberg) — European stocks fell Wednesday in a cautious start to the new year as investors watched for clues about whether central banks’ more dovish tendencies could further support the rally that marked the end of 2023.
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The Stoxx Europe 600 index was down 1.1% as of 2:58 p.m. in London, reversing earlier interim gains as shares in cyclical sectors such as construction and mining fell. This drop comes before the release of the Federal Reserve’s latest minutes later today.
Luxury stocks significantly underperformed, with heavyweight LVMH lagging, as analysts at UBS Group AG said they expected the sector to experience a weak earnings season, with limited visibility for the remainder of 2024. French rail stock maker Alstom SA was the largest individual. down, sliding after analysts at Barclays Plc reiterated their underweight on the stock and flagged continued problems.
On the positive side, pharmaceutical stocks were among the biggest gainers following favorable comments from analysts at Jefferies, while Danish container shipping giant AP Moller-Maersk A/S rose after an upgrade from Goldman Sachs Group Inc. The company has stopped its ships from sailing through the Red Sea amid attacks by Houthi rebels, and Goldman said such detours would increase freight costs and improve Maersk’s free cash flow.
European stocks have had a slow start to the year, with investors wondering whether the strong recovery that began in late October can be sustainable in 2024, particularly as fourth-quarter earnings season approaches. Over the past two months, the Stoxx 600 index has gained about 10%, led by real estate and technology stocks after the Federal Reserve signaled its bullish campaign may be over.
Some market players are cautious. Strategists at Citigroup Inc. said that while they recommend buying any declines in the market, they caution against “continuing rallies.”
“Equity market volatility tends to increase when central bank easing begins and market positioning is now the most bullish since 2019, implying potential short-term vulnerabilities,” wrote a team led by Beata Manthey of Citigroup in a note.
The European benchmark closed the year at its highest level since January 2022, while Germany’s DAX index hit a record in December.
For Michael Field, European markets strategist at Morningstar, although the rally could continue given that momentum is still there, valuation is a concern. “There’s not a lot of headroom for stocks,” he said.
SECTORS TO VISIT:
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Mining stocks, such as iron ore, climbed for a third day on expectations that the Chinese government would boost economic stimulus, with restocking starting ahead of the Lunar New Year holiday.
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European shipping stocks have seen Maersk once again halt its ships sailing in the Red Sea, a vital trade corridor.
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–With help from Michael Msika and Farah Elbahrawy.
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