European Stocks Eke Out Gains as Cyclical Shares Outperform

European equities edged up on Tuesday, hovering near an almost 11-month high, as investors favored cyclical sectors over their defensive peers.

The Stoxx Europe 600 Index added less than 0.1% at the close, after erasing an advance of as much as 0.4%. Autos, banks, travel and leisure shares outperformed, while defensive sectors, such as utilities and personal care, weighed heaviest on the market.

After making ground this year, investors are assessing the fallout from tougher coronavirus restrictions against the prospect of a vaccine-led recovery. Chancellor Angela Merkel warned that Germany faces the possibility of hard lockdown measures into late March, while hospitals in the U.K. are being pushed to their limits by a surge in cases.

European Stocks Eke Out Gains as Cyclical Shares Outperform

European equities last week rallied to the highest level since February on optimism that the Democrats’ win in Georgia will usher in more fiscal stimulus. At the same time, there’s rising concern about speculative excess and elevated valuations, which Goldman Sachs Group Inc. strategists said are the highest since the technology bubble era.

“In the past, when optimism was this broad, performance this strong, and investors so capitulated to the bullish story, the signal has been to sell, to take profits,” says Bob Baur, chief economist at Principal Global Investors.

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