As Europe’s luxury-goods stocks get off to a shaky start to 2026, some analysts are warning that the sector’s recent rally has left valuations looking inflated.
Morgan Stanley downgraded LVMH to equal-weight on Monday, saying both tariffs and currency fluctuations could weigh on earnings this year. Meanwhile, Bank of America Corp. analysts said much of a recovery that is about to unfold is already priced in to the sector.
Luxury valuations rose to a near four-year high last quarter, with a Goldman Sachs Group Inc. basket that tracks the sector priced at more than 30 times estimated earnings, according to data compiled by Bloomberg. The group gained 21% from its April low through the end of 2025.
The basket dropped as much as 3.3% Monday, falling for a sixth day in a row and touching a three-month low on US President Donald Trump’s latest tariff threats.
“China is not yet a catalyst, headwinds to margins are increasingly apparent, earnings lack real momentum at this stage, and valuations at the top end have limited headroom,” Morgan Stanley analysts including Natasha Bonnet wrote in a note.
LVMH sank 4.2% at 3:30 p.m. in Paris, Kering SA dropped 3.1%, Richemont lost 3%, Brunello Cucinelli SpA declined 2.8% and Burberry Group Plc fell 2.5%.
The stock price recovery from last spring’s tariff-induced slump has been driven by investor hopes for a sales pickup after two years of stagnation. While one early set of results — from Swiss jewelry maker Richemont — showed better-than-expected growth, the shares fell on concern that tariffs and currency effects will weigh on margins.
Increases to earnings estimates are unlikely unless the economic backdrop in China improves further, the Morgan Stanley analysts said.
Companies such as Hermès International SCA that sell ultra-premium goods should emerge as the winners in a sector shaped by an increasing divergence in earnings revisions, they said.
The first quarter is a more important catalyst than prior quarters “as it will help identify the shape of the recovery on ‘easy comps’ and newness arriving in stores,” Bank of America analysts including Ashley Wallace wrote in a note Friday.
Written by: Levin Stamm — With assistance from James Cone and Joe Easton @Bloomberg
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