Are Luxury Stocks Recession-Proof?
According to Oxford Economics, Americans saved roughly $3.7 trillion during the pandemic. However, approximately $360 billion of that amount will be spent by the end of 2022. Think twice, where will all the $$$s go?
Looking at the statistics, more than 69% of that spending is by the wealthiest 20% of households. Moreover, what goes hand in hand with wealth, is expensive items.
Luxury goods need no introduction. They are known for strong brand identity, high operating margins and timeless products. But are they also a good investment in the current markets?
During the pandemic these companies have demonstrated cash-rich balance sheets and high profitability. But will they be able to continue their growth in the tricky environment of high inflation, pressured stock markets, supply chain issues and a possible recession?
I found a feasible explanation in a study by the Bank of America, which showed that the correlation between luxury spending and the S&P 500, in the 10 years prior to the pandemic, was less than 30%. Moreover, there was also no correlation found between cryptocurrencies and luxury spending.
So, nothing stands in the way of diversifying one’s portfolio by adding, if not the latest edition of the Hermes bag, then luxury stocks.
However, if you decide to go for long-term investments, or to benefit from short term gains, be aware of timing when entering trades.
Buy me if you can
Burberry Group is the London-based fashion powerhouse, known for its iconic trench coats. It was ranked among the top 10 most valuable luxury brands in the world in 2021, with a brand value of $3.9 billion.
This luxury stock has been following its seasonal pattern from the beginning of the year. However, is now the right time for new investors to come on board? Looking from the seasonal perspective, Burberry does seem to be one of the companies whose stock price starts rising at the end of June.
Seasonal Chart of Burberry Group plc over the past 10 years
Source: Seasonax, click on the interactive link http://tiny.cc/seasonax-burberry to receive more information
Keep in mind that a seasonal chart depicts the average price pattern of a stock in the course of a calendar year, calculated over several years (unlike a standard price chart that simply shows stock prices over a specific time period). The horizontal axis depicts the time of the year, while the vertical axis shows the level of the seasonal pattern (indexed to 100).
From the chart above, it is clearly visible that the end of June until the beginning of August, over the past 10 years, have been reasonably favourable months for this luxury stock. In this time span of 32 trading days (from June 26 until August 9), shares rose on average by 7.3%. Moreover, since 2012 the pattern returns had a high winning strike of 90%, with 2020 being the one exception.
Another stock that you might consider for your investments is Restoration Hardware, that operates in the luxury furniture segment. It has faced supply chain issues like many manufacturers and retailers, that have pulled the stock’s price much lower during the last couple of months (open an interactive data chart to see the best entry and exit levels http://tiny.cc/seasonax-restoration). But this has not discouraged Restoration Hardware customers, hence we are still undoubtedly seeing high demand for this company’s products.
Will this trend continue?
The last recession is already a decade ago, and luxury brands have done their research. This time they are better prepared for uncertain times, thanks to better inventory control and less dependance on third-party retailers.
The time to recover from the crisis has been shortened due to a huge increase in Chinese consumer spending in the last decades. 2021 also saw much stronger demand from US customers, which has continued throughout 2022. The Bank of America aggregated US credit & debit card data showing that luxury spending is up 14% year to date. This should ease concerns over China’s Covid-related shutdowns.
Moreover, digitalization and the rise in e-commerce has led to a more direct relationship with customers that has proven to be strategic during the pandemic.
Indeed, luxury is actually a very interesting market for securing your money.
It is an industry that resists crises: luxury customers, due to their financial wealth, recover very quickly.
To help in deciding whether to invest your money, make sure to use Seasonality Screener. By signing up for free to https://app.seasonax.com/signup, you will be able to identify the best entry and exit points for more than 25.000+ instruments, including stocks, (crypto)currencies, commodities and indexes.
Remember, don’t just trade it, Seasonax it!
Co-Founder and Managing Partner of Seasonax
Tea Muratovic has worked in the financial industry for many years and has gained a strong financial background in the international market environment. Her strength lies in Capital Market Products & Asset Management. As the Founder of Seasonax (www.seasonax.com) and investment boutique Seasonax Capital (www.seasonax-capital.com) she has received several investment awards and been recognized by the industry experts for her achievements. Moreover, Muratovic is author of many articles that have been featured in industry relevant media (Institutional Money, Munich Stock Exchange, TalkMarkets, FundView, Bloomberg…).