European Stocks Climb to Reverse Weekly Loss as Cyclicals Lead

European equities rose, snapping their longest losing streak since October, as economically sensitive sectors rallied and luxury-goods shares were boosted by positive earnings updates.

The Stoxx Europe 600 Index advanced 0.5% at the close, erasing a weekly loss and trading within about 5% of a record high reached exactly a year ago. Miners, banks and travel shares led gains as defensive sectors such as health-care companies lagged. Hermes International and Moncler SpA climbed more than 3% after better-than-estimated results.

One year after the pandemic fueled a rout in European stocks, the Stoxx 600 is still recovering. It fell for the past three days, before clawing back some gains on Friday to close just 0.2% higher for the week. Strategists on average expect a further advance for the region’s equities this year, with many saying a pullback may be temporary.

European Stocks Climb to Reverse Weekly Loss as Cyclicals Lead

“I am thinking this is a healthy setback after the strong start to the year,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg Bank. “Economic optimism, higher-than-expected fourth-quarter corporate earnings, positive revisions to earnings expectations and high cash balances are causing investors to see selloffs as a buying opportunity.”

Optimism over the possible easing of lockdowns and a vaccine-led economic recovery is driving bullish bets, particularly into sectors hardest hit by the pandemic. While growth shares rallied in the initial rebound from the March lows, cyclical sectors such as miners and autos have risen strongly since. Many market participants predict a catch-up for value sectors such as energy and banks in 2021.

A Year Into Pandemic, Favored Trades Face Upheaval: Taking Stock

Some caution is entering the region’s market after recent gains. European equity funds had the biggest weekly outflow in eight weeks through Feb. 17, according to a report from Bank of America Corp. citing EPFR Global data, even as the asset class saw big inflows globally. BofA strategists led by Michael Hartnett recommend that investors monitor markets that are ahead in vaccination efforts for early signs that “good news is bad news,” noting that U.K. midcaps and Israeli shares are stalling amid positive developments.

On Friday, the impact of prolonged lockdowns was apparent in reports showing that business activity in the euro-area economy shrank for a fourth month in February as services struggled with continued lockdowns.

With investors focused on earnings, other noteworthy movers include Renault SA, which fell 4.4% after posting a record loss and warning of a rough year ahead. Danone climbed 2.2% after Chairman and Chief Executive Officer Emmanuel Faber said he’s opening talks with shareholders amid growing pressure for the yogurt maker to revamp leadership roles.

Tech shares also outperformed, with chipmakers up after BE Semiconductor Industries NV gave a favorable outlook, and as U.S. bellwether Applied Materials Inc. gave a bullish forecast.

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