(Bloomberg) -- European stocks dropped on Wednesday as investors clung to sidelines to wait for more definitive signals from central banks they are ready to pivot to easier policy.

The Stoxx Europe 600 Index ended the session 0.9%% lower, its worst day since Nov. 10, as shares in cyclical sectors like construction and mining fell. The move lower comes before the release of the latest Federal Reserve minutes later in the day.

Luxury stocks were notable underperformers, with heavyweight LVMH on the back foot as UBS Group AG analysts said that they expect the sector to see a weak earnings season, with visibility limited for the rest of 2024. French rail stock maker Alstom SA was the biggest individual decliner, sliding after Barclays Plc analysts reiterated their underweight rating on the stock and flagged persistent pressures.

On the positive side, pharmaceutical stocks were among the biggest gainers following supportive comments from analysts at Jefferies, while Danish container shipping giant A.P. Moller-Maersk A/S rose after an upgrade from Goldman Sachs Group Inc. The company stopped its ships from sailing through the Red Sea amid attacks by Houthi rebels, and Goldman said such detours would boost freight costs and improve Maersk’s free cash flow.

European equities have seen a slow start to the year as investors question whether a strong rally, which kicked off at the end of October, can be sustained in 2024, especially with the fourth-quarter results season around the corner. Over the past two months, the Stoxx 600 Index has gained around 10%, driven by real estate and technology stocks after the Federal Reserve signaled that its hiking campaign could be over.

Some market participants are taking a wary view. Citigroup Inc. strategists said that, while they recommend buying any dips in the market, they would caution against “chasing rallies.”

“Equity market volatility tends to rise when central bank easing begins and market positioning is now the most bullish since 2019, implying potential near-term vulnerabilities,” a team led by Beata Manthey wrote in a note.

Europe’s benchmark gauge closed out the year at its highest level since January 2022, while Germany’s DAX Index reached a record in December. 

For Michael Field, European market strategist at Morningstar, while the rally could continue given the momentum is still there, valuation is a concern. “There’s not a lot of headroom for equities,” he said.

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--With assistance from Michael Msika and Farah Elbahrawy.

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