Why are luxury stocks suffering on the stock market?

A historically solid sector, now weakened 📉 The luxury sector, long considered a pillar of stable growth in the financial markets

A historically strong sector, now weakened 📉

The luxury sector, long considered a pillar of stable growth in financial markets, is currently going through a difficult period. Giants like LVMH , Hermès , and Kering , pillars of the CAC 40 , are experiencing significant drops in their share prices. This decline is weighing heavily on the flagship index of the Paris stock exchange, especially since luxury stocks represent more than 25% of its market capitalization.

Worrying economic signs 🌍

Major financial institutions are sounding the alarm 🚨

Bank of America recently downgraded LVMH to "neutral," leading to subsequent downgrades for Kering and Hugo Boss . The message is clear: growth is slowing, and margins are shrinking. This is a worrying development for a sector that, until now, had largely benefited from the inflationary environment thanks to exceptional pricing power .

The macroeconomic context is turning around 🌀

The situation in China, a major driver of the luxury market, is weighing heavily on the outlook. The slowdown in the Chinese economy is weakening local demand. Chinese consumers, once the driving force behind global sales, are now more cautious. Goldman Sachs anticipates a decline in profits, while HSBC has revised its sector growth forecast downward to 2.8% for 2024.

Pricing power called into question ⚖️

Luxury brands can no longer raise their prices as easily as before. In a disinflationary environment , consumers are becoming more selective. Price increases are increasingly contested, particularly by "aspirational" customers—those who aspire to consume luxury without necessarily having the regular means to do so.

A fracture in the luxury clientele 🔍

According to Jean-Jacques Guiony (CFO of LVMH), the polarization is intensifying between long-standing, very affluent customers and new consumers. The decline in visits from younger or occasional shoppers is pushing brands to redouble their efforts in innovation and storytelling to maintain their appeal.

What are the prospects for investors? 📊

Should we reject the values of luxury? ❌

Not necessarily. While the current environment remains challenging, falling valuations could offer attractive entry points for long-term investors. Luxury companies possess powerful assets: strong brands, loyal customer bases, and high margins. Provided they adapt their strategies, they could rebound when macroeconomic indicators turn positive again.

The need for smart diversification 🌐

At Evvest , we encourage investors not to concentrate their portfolios solely on the CAC 40 , which is heavily exposed to luxury goods stocks. We recommend diversifying into more diversified indices such as the MSCI Europe or the MSCI World , and exploring other asset classes (bonds, real estate, private equity, ESG thematic funds, etc.).

Geographic and sector diversification helps to cushion shocks and smooth portfolio volatility, especially in a period where some sectors outperform and others suffer greatly.

Conclusion: Luxury and prudence can coexist 🎯

Luxury stocks are experiencing a period of turbulence, but their potential for a medium-term rebound remains real. A diversification strategy , combined with close monitoring of the Chinese and American markets , is essential to navigate the current volatility.

At Evvest , we continue to monitor these developments closely in order to adjust our allocations accordingly. Our conviction remains clear: building a balanced portfolio means never putting all your eggs in one basket, even a golden one.