(Bloomberg) -- European stocks retreated as traders assessed valuations following a rally that pushed shares near a 10-month high, with cyclical sectors leading the drop.
The Stoxx Europe 600 Index slid 0.7% by the close in London, led by industries most sensitive to the economy, including travel and construction, while miners slumped after posting their best week since 2016. Cyclical sectors have benefited from forecasts for an economic rebound fueled by stimulus bets and Covid-19 vaccinations.
Meanwhile, health-care stocks outperformed on Monday as a stronger dollar boosted exporters. Bank of America Corp. strategists warned of signs of a bubble in renewable shares, and utilities retreated.
European equities rallied last week as U.S. Democrats won control of Congress, sparking speculation of further government spending and fueling gains in cyclical and value shares. The jump came even as countries like the U.K. and Germany urged the public to adhere to harsh social restrictions to control the spread of Covid-19.
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A fear of missing out among investors who have been slow to play the recent reflation trade might prevail over more short term concerns around the pandemic, Emmanuel Cau, head of European equity strategy at Barclays, said by phone. That said, valuations “look a bit toppish,” he added.
The Stoxx 600 is trading at a 12-month forward earnings multiple of about 17.8, which Goldman Sachs Group Inc. strategists note is the highest since the technology bubble era at the turn of the century.
Among individual stocks, JD Sports Fashion Plc closed at a record high after reporting sales growth that broker Peel Hunt described as “quite remarkable.”
Investors are also keenly anticipating earnings announcements from big U.S. investment banks later this week amid recent outperformance for financials, Ben O'Dwyer, SPDR ETF strategist, said by email.
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