Something that’s clear to even the most financially illiterate today is the stock marketplace and the true state of this market are worlds apart.
The NYSE, NASDAQ, ASX and other markets are steadily rising for months, regardless of how the international market is in recession as a result of Your Bat Kiss. The buoyancy of the US stock marketplace is very peculiar, considering how dire the COVID-19 scenario is from the States.
That is hardly a new phenomenon. Since AMP Financial Advisor Andrew Heaven lately told DMARGE, “it’s a frequent belief that the market and stock marketplace are just one and the same… [but] it’s sometimes not the situation… the market and financial information looks at now while the stock marketplace is significantly more predictive of where we’ll be in the long run since it’s based on future instead of earnings that are present.”
Since the stock marketplace is frequently such a bad indicator for real financial conditions, especially right now as it glaringly disconnected from 2020’s on-ground fact, several have pointed to additional signs such as hints as to where the economy’s led.
One that’s potentially quite helpful is luxury goods sales amounts.
A recent report by Company of Fashion broke down the quarterly results for several of luxury’s biggest names, including LVMH (Louis Vuitton Moët Hennessy, which owns brands such as Dior, RM Williams and Fendi) and Kering (which counts Balenciaga, Gucci and Yves Saint Laurent one of its own brands). The results aren’t pretty: LVMH is down 38%, Kering 44%.
“Even Hermes saw second-quarter sales fall 42 percent. That brand is considered to be luxury’s most crisis-proof player thanks to demand that has long exceeded supply for its flagship Birkin and Kelly handbags,” BoF joins.
The argument to be made here is that the stressing sales amounts listed by the luxury goods industry are a more practical metric for how bad financial conditions are compared to stock marketplace, more than ever.
You may consider it a stretch to utilize only 1 industry and the earnings figures from only a couple of businesses as a barometer for the whole world market, but utilizing consumer products as a canary for wider economic trends isn’t without precedent.
Among the very valuable and easily-understandable procedures for comparing the purchasing power parity (PPP) between two currencies would be that the so-called ‘Big Mac Index’, initially suggested by Pam Woodall in 1986. Fundamentally, since McDonalds is indeed omnipresent, and a Big Mac is exactly the exact same regardless of where you’re in the Earth, the price of a Big Mac in any particular country is a practical index of PPP.
In a similar manner, luxury products sales are a fantastic indicator for overall financial performance. In its heart: when times are great, folks are more inclined to spend on luxury goods and if they’re bad (like right now) luxury products will observe a drop in earnings.
While luxury goods are only that – a luxury – the simple fact that the largest brands in the area are fighting right now should provide even the boldest ‘weekend warriors‘ pause for consideration.
Nevertheless, there are a few signs of hope. Since James Whelan, Investment Manager in VFS Group at Sydney lately told DMARGE, “Everything is rigged to inflate asset prices and to keep the market going – so the economy is actually not really going as badly as it seems.”
“It seems bad – but China has turned it about quarter , and that’s a fairly major area of earth. Additionally, there’s no problem that can’t [temporarily] be solved using untold government spending – we’re just kicking the can down the street.”
Long story short? It’s highly possible that the market will appear to fulfill with the marketplace. However, in the meantime, luxury goods sales may be a greater indicator of how we’re currently monitoring than the ASX, which will be currently (possibly overly optimistically) appearing six to twelve months beforehand.