NEWYORK
European luxury stocks have lagged the broader market by as much as 25 percent through May before stabilizing, yet remain depressed as prior relief rallies faded quickly.
Subdued sales recovery and weak consumer sentiment have weighed on the entire consumer sector. Chinese stimulus has failed to revive demand, and geopolitical friction has added pressure.
JPMorgan strategists, led by Mislav Matejka, found that consumer stocks tend to outperform over the subsequent 12 months when sentiment reaches troughs. Luxury segments historically lead such recoveries, gaining an average of 9 percent to 12 percent relative to the broader market following lows in the University of Michigan Consumer Sentiment Index.
JPMorgan maintains an overweight on global luxury, anticipating wealth effects as conditions stabilize. Korea is now a larger growth driver for the sector than the Middle East, while Chinese demand is expected to improve as the macroeconomic environment steadies.
Earnings growth for luxury has been subdued for roughly two years relative to the broader market. Profit estimates now signal the trough has passed and a pickup is imminent.
Christina Carlsten, senior fund manager at Banque Piguet Galland, said investors without luxury exposure could consider accumulating positions as a contrarian trade for long-term investors, though recovery may take time.
Risks remain. Weaker Chinese import data and concerns over purchasing weakness in July and August—attributed to increased taxation of offshore wealth—have renewed focus on demand headwinds.
Bank of America analysts, led by Ashley Wallace, reported industry data showing a three percentage point slowdown in global luxury performance in the third quarter of 2026 to date versus the second quarter, excluding September's still-pending results. The slowdown hit hardest in markets that led in the second quarter: the U.S. Japan, Korea and Macau. European Union tourism, by contrast, is holding up.
Bank of America maintains buy ratings on LVMH SE, Hermès International SCA and Richemont SA, anticipating a gradual rather than linear recovery in luxury demand.
Valuation-wise, the luxury sector trades near its 10-year average. For fixed-income strategists, consumer sentiment troughs and shifts in earnings trajectories signal broader economic health and future inflation paths—critical inputs for monetary policy expectations.
