European Stocks Slide With Cyclicals Losing Favor After Rally
European Stocks Slide With Cyclicals Losing Favor After Rally
(Bloomberg) -- European stocks fell for a second day, with the recent rotation into cyclicals reversing further as investors assessed the extent of the market rebound ahead of a key Federal Reserve meeting.
The Stoxx Europe 600 Index closed 1.2% lower. Banks and insurers, among the biggest gainers since mid-May, fell 2.5% or more, while more defensive sectors outperformed.
Stocks are falling ahead of a two-day Fed meeting concluding tomorrow. The Euro Stoxx 50 Index dropped below the 200-day moving average after testing the level, while its relative strength index dropped below 70, the threshold that signals equities are overbought. The benchmark had reached a three-month high Friday amid a strong policy response and economies reopening.
“It would be very appropriate for the market to enter a correctional move,” said Carsten Roemheld, Fidelity International’s capital markets strategist. “A consolidation would be good and healthy to lay the foundation of potential further gains later on. I don’t think that we will see a massive drop from here. Everything within a 10% correction would be alright.”
Among individual stocks, U.K. engineering-software firm Aveva Group Plc rose 4.1% after reporting an increase in full-year pretax profit. British American Tobacco Plc fell 3.1% after reducing its forecast for full-year revenue growth.
The Stoxx 600 has recouped almost two-thirds of the pandemic-induced market rout through March. Although the early part of the rebound since March was led by defensives, laggards such as cyclical and value shares had outperformed since mid-May, with travel and leisure, banks and autos jumping more than 27%.
“Despite all the alarm signs and exaggerations, especially in the U.S. technology sector, the signs point to a consolidation,” said Markus Steinbeis, managing director at Steinbeis & Haecker Asset Management. “The sentiment among institutional investors remains a little euphoric. The Fed meeting will also be decisive tomorrow.”
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