Stock Week Ahead: Forget FAANG, It’s All About LVMH

Latest / May 29, 2022 / DRPhillF / 0

In short: Our weekdays are filled with pictures of traders holding hands at the New York Stock Exchange, our weekends are filled with pictures of models Kanye West and Balenciaga stomping through narrow alleys…

why not? Luxury spending in the United States was 47% higher in 2021 than it was before Covid 2019, while spending on jewelry was 40% higher, according to Bank of America data. And the general stock market chaos isn’t a headwind either, they say.

“We believe that many investors believe that demand for luxury goods in the United States is closely related to stock market performance, as a significant proportion of household wealth is tied to this asset class,” Bank of America analysts wrote in a recent note. But that’s a far cry from reality: Bank data showed that in the 10 years prior to Covid, the correlation between luxury spending and the S&P 500 was less than 30%. There was absolutely no correlation between the price of cryptocurrency and luxury spending.

“Very strong demand from luxury goods customers in the US was the biggest positive tailwind in 2021. The strength continued in 2022 despite a more complex macroeconomic background. High-income consumer demand for luxury is accelerating, which we attribute to the reopening. and more buying opportunities (yield) from weddings, anniversaries, holidays, etc.),” they wrote.

If there was a match between Walmart and Weitzman today, the luxury shoe brand would take the belt. Walmart and Target felt the brunt of rising inflation and supply chain kinks.

Walmart CEO Doug McMillon said after the company reported weaker-than-expected first-quarter earnings and lowered its full-year profit forecast: “U.S. inflation levels, particularly in food and fuel, have created more pressure on its margin mix and operating costs than it has. We expected.” last week.

Walmart stock is down more than 18% for the month and the target is down nearly 30%. By contrast, Moet Hennessy Louis Vuitton (LVMH) is down just 5.6%, Burberry stock is up more than 8%, and Tapestry, the company behind Coach, Kate Spade and Stuart Weitzman, is up more than 2%. The S&P 500 is down about 3% for the month.

As the West provides some good news for luxury brands, the Covid-related lockdowns in China have caused some concern. China’s strict containment measures in response to the recent surge in Covid have closed luxury stores and left goods that were scheduled to be shipped around the world stranded in Chinese ports. Increased demand in the United States and Europe has offset those losses, Marco Gobetti, CEO of Ferragamo, said during a recent conference call.

The second quarter is also less exposed to Chinese consumption due to fewer travel and less important shopping holidays, giving luxury brands some breathing space as Asia begins to lift restrictions again. The hope is that by the third quarter, Chinese consumers will be back to “revenge shopping” for pent-up demand during lockdowns.

Bank of America analysts wrote that luxury stocks are still priced as if they were in a recession. “The luxury goods sector continues to be under pressure now as a result of the rise in COVID-19 cases in China,” the note said.

There have been six previous downturns in the luxury industry over the past two decades: the 2000-2001 dot-com bubble, the 2007-2009 global financial crisis, the 2013-2014 Chinese anti-corruption campaign, the China-US trade hostilities of 2018, the Covid pandemic and the Shared Prosperity Declaration for China in 2021.

These declines have become shorter and less severe over time. BofA analysts found that, on average, the first three dips resulted in a 52% drop from peak to trough over 85 weeks and took 119 weeks to recover to the previous peak. But the last three declines fell by only -22% on average over 8 weeks and only took 20 weeks to recover from previous highs.

If patterns stay the same, history shows that Covid-related restrictions in China are unlikely to destroy demand for luxury goods, just change the timing, and that a stock price decline in this (multi-level event) would be a particularly good buying opportunity.” Bank of America analysts wrote.

Available evidence may indicate that this decline does not affect all Americans equally. The recovery from the short-lived Covid recession has been what people refer to as the K-shaped. It occurs when separate societies recover from economic downturns at varying rates. Some sectors of society may experience renewed growth while others continue to lag.

Growth in luxury fashion spending in the US grew among all income groups in 2021 as the economy recovered from the Covid shocks and markets rebounded. This was not the case in 2022. Growth in luxury spending was the strongest among the high-income group, up 26% year over year. Low-income earners cut their luxury consumption by 5%.

It’s impossible to draw conclusions from such a small sample of data, but the numbers suggest this downturn could be a repeat of the K-shaped recession of 2020 when many who worked in white-collar jobs recovered quickly as the government introduced stimulus payments and equity. and estimating housing prices. According to data from the Bureau of Labor Statistics, those without savings and those who worked in service jobs continued to suffer.

Today, Walmart shoppers seem to be getting cocky while shoppers in Balenciaga pick up $800 worth of T-shirts on the New York Stock Exchange.

Republican Senators Resist ESG Campaign

“With great power comes great responsibility” is a saying that both Spider-Man and asset managers have taken very seriously. Some Republican senators don’t like it – at least when it comes to asset managers.

Over the past few decades, investors have flocked to index-tracking funds that give them broad access to the markets at accessible prices. Accordingly, large asset managers, including BlackRock, Vanguard and State Street, grew. The three companies together manage $22 trillion in assets. This equates to more than half the value of all shares of all companies in the S&P 500.

That’s a lot of money. And a lot of posts. This means that asset managers have a lot of voting power over public companies.

They have recently used this power to advocate for changes that are friendly to the environment, society, and governance. They have pushed companies to diversify their executives and boards of directors, focus on environmentally friendly policies and invest in labor.

This year, BlackRock CEO Larry Fink asked companies to set short, medium and long-term goals to reduce greenhouse gas emissions. “These goals and the quality of plans to achieve them are essential to the long-term economic interests of your shareholders,” he said.

Leaders in Alaska’s energy sector were unhappy with this pressure. They complained to Republican Senator Dan Sullivan, who in turn introduced legislation allowing voting options to be made available to individual investors in passive funds if money managers own more than 1% of a company’s stock.

In other words, investors who store money in funds, not fund managers, will have the right to vote.

The bill is co-sponsored by 11 Republican senators.

“The whole ESG movement just doesn’t reflect what America wants,” Sullivan said in a recent interview with Squawk Box. “Why should these three companies with monopoly power be able to vote on all these shares? It has distorted the market so dramatically that these three companies with massive, massive power own 88% of the S&P. This is a distortion of capital markets and is reflected in the The energy policies we’re talking about.”

BlackRock said late last year that it would soon roll out technology to allow proxy voting by customers.