Luxury stocks have shown some very stunning results over the last few years. Making new all-time highs the past few months. Which is, of course, very surprising because we are supposedly in a modern day depression with high unemployment and high defecits. You would expect luxury brands to perform very poorly. But the opposite seems true.
I’m going to first show you some charts of luxury stocks and then give you a possible explanation for this.
Compagnie Finaciere Richemont SA. Key brands: Cartier, Montblanc, Chloe, IWC, Piaget, Vacheron Constantin, Baume & Mercier and Lancel.
LVMH Moët Hennessy Louis Vuitton. Key brands: Louis Vuitton, Marc Jacobs, Guerlain, Givenchy, Moet & Chandon and Hennessy.
Burberry Group PLC. Key brand: Burberry.
Why have luxury stocks performed so well? I tend to think we should look at the buyers of luxury stuff. The top 10% of wage earners and people with a high net worth.
This is an interesting article about income and wealth distribution in America of which I will use a few tables here.
The table below shows the distribution of income and wealth in the US between the different percentiles of the population.
This table shows how the income is divided:
From the article: “In terms of types of financial wealth, the top one percent of households have 35% of all privately held stock, 64.4% of financial securities, and 62.4% of business equity. The top ten percent have 81% to 94% of stocks, bonds, trust funds, and business equity, and almost 80% of non-home real estate.” This is shown in this table:
So we can conclude that the richest 10% of the country own almost all stocks (81%), while the middle and lower class are more dependable on their principal home (60%) for their net worth. While of course a large portion of American society has no or even a negative net worth.
If we now look at how stocks, houses and wages have performed since the 2009 bottom we can see why luxury stocks are doing so well.
The S&P 500, makeing a new all-time high as I write this. Don’t forget dividends:
House prices in the US (Case-Shiller index):
Wages in the US. Percent change from previous year. You can easily spot that on average wages have grown very slow in the last few years. Barely keeping up with inflation.
The rich 10% of America have profited the most the last few years because stock prices went up while housing and wages remained low. This in turn has resulted in higher stock prices for luxury brands.