Luxury sector earnings expectations are "too optimistic"! Within a month, multiple major banks have turned collectively bearish, and luxury stocks are heading for their worst year since 2008.

Title context: Luxury sector earnings expectations are "too optimistic"! Within a month, multiple major banks have turned collectively bearish, and luxury stocks are heading for their worst year since 2008. Text: Analysts at Royal Bank of Canada (RBC) said market earnings expectations for European luxury goods makers are overly optimistic given the weakening demand environment and purchasing trends. The team led by Piral Dadhania said in a report that the weakening economic backdrop has led to mixed data in Asia, and U.S. consumption may also slow. They noted that in a tougher environment, luxury brands' creative marketing is unlikely to deliver the expected sales boost, and described their stance as "more cautious." RBC downgraded LVMH and Burberry Group to "sector perform" from "outperform." The analysts cut their 2027 earnings per share forecasts for Kering, Moncler SpA, Hermes International and Swatch Group AG. Dadhania and colleagues said earnings expectations for next year "still look too optimistic in our view, assuming accelerating revenue growth and margin expansion for most stocks, which does not reflect the current luxury industry environment and requires a trend inflection." Luxury stocks may post their worst annual performance since 2008 RBC 's view adds another layer of gloom for already disappointed luxury stock investors. The Iran war has pushed up oil prices, intensified inflation concerns and triggered hawkish central bank responses that could curb consumer spending. Continued weakness in Asian demand has further dampened 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 for its worst annual performance since 2008. Heavyweights LVMH and Hermes are among the worst laggards, each down about 37% year to date. RBC analysts said their preferred names in the luxury sector are Ferrari and Richemont. Bearish sentiment spreads Bearish sentiment toward the luxury industry is spreading across Wall Street. Over the past month, from RBC and Morgan Stanley to HSBC and Bernstein, multiple investment banks have cut ratings, target prices or earnings forecasts for European luxury stocks. A week earlier, Morgan Stanley cut its LVMH target price to 450 euros from 520 euros, maintaining an "equal-weight" rating; JPMorgan cut its target price to 525 euros from 580 euros, maintaining a "neutral" rating, and expects volatility and weakness in Chinese retail to continue into 2027. HSBC analyst Anne-Laure Bismuth's team also downgraded LVMH and Burberry to "hold," saying outright that investors should not buy just because valuations are cheap unless the "second derivative" of sales growth improves, and no more positive momentum is visible in the second half. Jefferies cut its LVMH target price to 440 euros from 510 euros. What triggered this round of collective repositioning was another stall in Asian demand. Bernstein analyst Luca Solca's team warned in early September that sample data from mainland luxury malls showed sales fell 12% year on year in July, the "fourth false dawn" for post-pandemic Asian luxury consumption recovery - after rebounds in late 2023, late 2024 and late 2025 all failed. The team cut its third-quarter industry organic growth forecast by 110 basis points to 4.9%. Stronger tax enforcement on offshore wealth is also seen as having a "chilling effect" on high-net-worth consumption. What worries Wall Street more than demand volatility are structural problems. Morgan Stanley pointed out that the "historical pillars" supporting luxury premiums - strong pricing power, China-driven structural growth, margin expansion and low earnings volatility - are being challenged or normalized, so long-only funds continue to avoid the sector; even after valuations have fallen sharply, no room for valuation repair is visible over the next 12 months. Still, there is structural preference within the consensus, with hard luxury unanimously favored: 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, believing jewelry brands are more resilient in China. UBS on Sept. 2 added Richemont to its top five European consumer discretionary picks, noting its valuation is at a near-20-year low relative to peers; Barclays is overweight Richemont, Moncler, Burberry and PRADA. Jefferies' latest channel checks also show that, amid weak soft luxury, hard luxury remains resilient in China. The disagreement is mainly over whether valuations are cheap enough, but until demand trends inflect, "more cautious" remains Wall Street's main tone.