Luxury Stocks Stumble Amid Wall Street Bearish Reports

An increasing number of Wall Street investment institutions are broadly downgrading their ratings on European luxury stocks, which have long led the European stock market. Bank of America has become the latest major Wall Street bank to issue a bearish warning for the luxury goods industry, which is mired in demand difficulties. The bank's analyst team downgraded the rating of LVMH, the leader of the luxury goods industry and parent company of Louis Vuitton, to "neutral," and also downgraded the stock ratings of other European luxury giants, including Kering, the parent company of Gucci.

"We now consider that the luxury goods industry's revenue growth rate will experience a more prolonged slowdown or decline, which may translate into further pressure on profit margins," wrote the Bank of America analyst team led by Ashley Wallace in a report, adding that this pessimistic scenario could continue into the second half of this year and even throughout 2025. This implies that the luxury stock trend, which has long been a major force driving European stock market highs, may be trapped in a long-term slump.

The seven major luxury goods giants, once seen as the "Magnificent 7" of the European stock market, are now following the low luxury consumption trend with their stock prices. In recent months, the European luxury goods giants, who were once "unscathed" through the 2022 global stock market bear market, have seen their total market value evaporate by hundreds of billions of dollars, suffering a heavy blow. Kering, the parent company of Gucci, and Hugo Boss AG have suffered the most significant market value impact, with their market value shrinking by nearly half in the past year.

In addition to LVMH, Bank of America's analyst team also downgraded Kering, the parent company of Gucci, to "neutral," downgraded the stock rating of Hugo Boss AG to "underperform," and significantly reduced the target prices for the entire European luxury goods stocks. This largely led to a decline in the stock prices of these three luxury goods giants at the start of the European stock market on Monday. LVMH's stock price fell by 1.7%, and another luxury goods giant, Hermes, saw its stock price fall by 1.8%. The French benchmark index, CAC 40, performed worse than the pan-European benchmark index.

Asia, as the most important market for high-end luxury product manufacturers, is increasingly receiving attention from investors due to the region's economic growth slowdown. This is also one of the logics behind Wall Street giants, including Bank of America, downgrading the ratings and target prices of European luxury goods stocks.

Before Bank of America released this bearish report on European luxury stocks, the analyst teams of two other major Wall Street investment banks, Goldman Sachs and Jefferies International Ltd., warned that profits of European luxury goods giants would further decline significantly due to the still weak global demand for luxury goods. So far this year, a benchmark index tracking the industry's stock targets has plummeted by more than 13%, compared to a rise of more than 7% in the MSCI Europe benchmark stock index this year.

The Bank of America analyst team led by Wallace said that luxury goods companies need to refocus on creativity, new fashion content, and novelty in style to boost sales, pointing out that luxury brands that have launched new fashion styles this year have regained momentum in performance growth.