News: Luxury Stocks Lose $30 Billion in One Day on Demand Fears

The luxury goods sector, which had experienced a strong rally fueled by international demand, particularly from China, suffered a significant setback on Tuesday, resulting in a loss of over $30 billion from the sector's value.

Hermes International saw its shares drop by as much as 5.5%, while LVMH Moet Hennessy Louis Vuitton and Kering SA, the owner of Gucci, experienced declines of around 4% and over 2%, respectively. Over the past year, the luxury sector has become a dominant force in the European stock market, comparable to the influence of Big Tech in the US. These businesses have demonstrated growth despite economic fluctuations.

However, confidence in the sector has wavered, with attendees at a luxury conference in Paris expressing concerns about a "relatively more subdued" performance in the US, particularly among aspirational consumers. This has raised worries about a slowdown in the US market, even as demand remains strong in other regions, such as Asia.

Both Asia (excluding Japan) and the US are vital markets for European luxury companies. LVMH reported that Asia accounted for 30% of its sales in 2022, while the US constituted 27% of its sales. Deutsche Bank analysts have also highlighted the growing concern about a slowdown in the US. Although Chinese demand has been a key driver of sales growth, investors are expected to become more selective going forward.

Despite the recent setback, luxury stocks have significantly outperformed the broader market this year, with LVMH up 25% and Hermes up 34%, compared to a 10% rise in the Stoxx Europe 600 Index. The luxury sector remains an attractive choice for many investors, although its premium compared to the overall market is at historically high levels.

The rally in luxury stocks defied the broader economic slowdown, as investors bet on Chinese consumers' willingness to spend following strict lockdowns. LVMH and Hermes reported surges in sales, particularly in China, driving their share prices to record highs. However, there have been indications of potential challenges ahead, with LVMH noting a slowdown in US growth and Burberry observing a softening demand for sneakers and entry-level products among younger Americans.