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European Stocks Drop as Market Weighs Valuations Before Earnings

European Stocks Drop as Market Weighs Valuations Before Earnings

European stocks retreated ahead of the earnings season as investors mulled whether the rally that had propelled the market to an 11-month high could keep going amid concerns about new Covid-19 restrictions.

The Stoxx Europe 600 Index dropped 0.2% at the close, with retail, miners and travel sectors leading the declines. Banks were 0.9% lower after Bank of America Corp.’s fourth-quarter sales and trading revenue missed estimates and Goldman Sachs Group Inc. shares fell despite a surge in profit.

Expectations for this year’s earnings season are running high after the Stoxx 600 benchmark accumulated gains of about 20% since the end of October. Investors are also reviewing progress on stimulus efforts, with Treasury Secretary nominee Janet Yellen making the case for U.S. President-elect Joe Biden’s $1.9 trillion Covid-19 relief plan at a confirmation hearing Tuesday.

“The mood on the European equity markets is very ambivalent,” said Comdirect Bank strategist Andreas Lipkow. “On the one hand, institutional investors don’t want to miss any upside, while on the other hand, nobody wants to be caught off guard. This makes the overall picture appear nervous and tense.”

European Stocks Drop as Market Weighs Valuations Before Earnings

In Italy, a group of senators is set to switch allegiance to back Prime Minister Giuseppe Conte’s governing coalition, potentially giving him an outright majority in the upper house, according to people familiar with the talks. The result of the Senate confidence vote is due after the European market close. The FTSE MIB Index dropped 0.3%.

Meanwhile, German Chancellor Angela Merkel and regional leaders agreed on Tuesday to extend and tighten the country’s coronavirus restrictions in a drive to curtail the spread of infection. The DAX closed down 0.2%.

Among individual stocks, Entain Plc fell 12% after U.S. casino operator MGM Resorts International said it decided not to make a firm offer for the U.K. gambling company.

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