A booming luxury sector has been the standout in European markets this year so far. High-end retailers such as LVMH have taken on comparable importance for the region as technology companies like Apple have in the U.S.
So a drop on Tuesday wiping billions off the valuations of some of the biggest luxury companies sends a worrying signal for European markets as a whole.
Stocks across the sector slumped on the day, and were some of the worst performers in the Stoxx Europe 600 index. Hermès International (ticker: RMS.France), maker of the Birkin handbag, fell 6.5%. Fashion brands Moncler (MONC.Italy) and Christian Dior (CDI.France) both dropped more than 5%.
Paris-based LVMH Moët Hennessey Louis Vuitton (MC.France), the biggest luxury conglomerate of all, dropped 5%. Last month, LVMH claimed the crown of Europe’s biggest stock by market capitalization as it became the first in the region to break the $500 billion mark.
There was no obvious catalyst for the selloff, which only takes some of the heat out of Europe’s luxury rally. LVMH, for example, is still up 23% this year so far.
Analysts at Deutsche Bank this week said investors in luxury stocks should be paying attention to slowing growth in the U.S., as aspirational customers—those stretching their budgets to buy luxury goods as opposed to the super rich—begin to feel economic pain.
“The luxury sector remains a crowded long for many investors, with the sector’s premium to the market at historically high levels,” the Deutsche Bank analysts, led by Matt Garland, wrote in a research note.
A more cautious approach to luxury stocks could reduce the attraction of European stocks as a way to hedge against U.S. risks. The Stoxx Europe 600 is up 9.8% this year against a 9.0% rise in the S&P 500 index.
Write to Adam Clark at [email protected]