Analysts at RBC Capital Markets have cautioned that market expectations for European luxury goods makers' earnings are overly optimistic, given a weakening demand environment and softening purchasing trends. The team, led by Pilar Dadhania, noted that a deteriorating economic backdrop has produced mixed data across Asia, while US consumption may also lose momentum.
They argued that in a tougher climate, creative marketing efforts by luxury brands are unlikely to deliver the anticipated sales boost, describing their stance as "more cautious." RBC downgraded its ratings on both LVMH and Burberry Group from "outperform" to "sector perform." The analysts also lowered their 2027 earnings per share estimates for Kering, Moncler SpA, Hermes International, and Swatch Group AG.
Dadhania and her colleagues stated that expectations for next year's profits "still look too high in our view, as they assume revenue growth acceleration and margin expansion across most names, which does not reflect the current luxury environment and would require a turning point in trends."
Luxury Stocks on Track for Worst Annual Performance Since 2008
RBC's view adds another layer of gloom for luxury stock investors already facing disappointment. Rising oil prices driven by the Iran conflict have intensified inflation concerns and prompted hawkish signals from central banks, which could dampen consumer spending. Persistent weakness in Asian demand has further undercut hopes for an industry earnings recovery.
A basket of luxury sector stocks compiled by Goldman Sachs Group has fallen 15% in 2026 and, as of Monday's close, is heading toward its worst annual performance since 2008. Heavyweights LVMH and Hermes are among the biggest laggards, each down roughly 37% year-to-date. RBC analysts said their preferred picks within the luxury space are Ferrari and Richemont.
Bearish Sentiment Spreads Across Wall Street
Negative sentiment toward the luxury industry is spreading across Wall Street. Over the past month, a wave of major banks — from RBC and Morgan Stanley to HSBC and Bernstein — have aggressively cut ratings, price targets, or earnings forecasts for European luxury stocks.
In the previous week, Morgan Stanley reduced its LVMH price target from EUR 520 to EUR 450 while maintaining an "equal-weight" rating. JPMorgan lowered its target from EUR 580 to EUR 525, keeping a "neutral" stance and predicting that volatility and weakness in Chinese retail would persist into 2027. HSBC analysts led by Anne-Laure Bismuth also downgraded LVMH and Burberry to "hold," bluntly stating that investors should not buy based on cheap valuations unless the "second derivative" of sales growth improves, as no positive momentum is visible in the second half. Jefferies trimmed its LVMH target from EUR 510 to EUR 440.
The trigger for this collective shift was the renewed slowdown in Asian demand. Bernstein analysts led by Luca Solca warned in early September that sample data from luxury malls in mainland China showed July sales down 12% year-on-year, calling it the "fourth false dawn" for post-pandemic luxury consumption recovery in Asia — following failed rebounds in late 2023, late 2024, and late 2025. The team cut its Q3 industry organic growth forecast by 110 basis points to 4.9%. Increased tax scrutiny on offshore wealth has also been cited as having a "chilling effect" on high-net-worth spending.
Beyond demand fluctuations, structural concerns are what worry Wall Street most. Morgan Stanley pointed out that the "historical pillars" supporting luxury pricing power — strong pricing authority, China-driven structural growth, margin expansion, and low earnings volatility — are being challenged or normalized. As a result, long-only funds continue to avoid the sector, and even with valuations having pulled back significantly, no re-rating upside is visible over the next 12 months.
Within the consensus, however, there are structural preferences, with hard luxury viewed favorably across the board: RBC and Bernstein both list Richemont as a top pick, with Bernstein calling it the sector's "best name." Morgan Stanley is most bullish on Richemont, citing jewelry brands' greater resilience in China. UBS added Richemont to its top five European consumer discretionary picks on September 2, noting its valuation sits near 20-year lows relative to peers. Barclays holds an overweight position on Richemont, Moncler, Burberry, and Prada. Jefferies' latest channel checks also show that hard luxury retains resilience in China amid soft luxury weakness.
The main point of disagreement lies in whether valuations are cheap enough, but until demand trends show a turning point, "more caution" remains the prevailing tone on Wall Street.