Did you know that the overall luxury industry – defined by spending on both luxury goods and experiences like luxury cars, hotels, and bags – grew by 20% last year?
At first, that might seem very odd.
We are talking about last year, after all…
A year when the U.S. Federal Reserve embarked on its most aggressive rate-hiking campaign ever…
When inflation ran to 40-year highs, stocks crashed, the economy dipped into a technical recession, and companies like Meta (META) and Netflix (NFLX) announced huge job cuts.
Through all that, luxury spending rose 20%!
What? How? Why?
We had a million questions, too. But that led us to a new theory to explain the ostensibly odd 20% jump in luxury spending.
We’re calling it the “Luxury Shift.”
The Great Shift to Luxury Goods and Experiences
In short, instead of buying homes, younger folks are buying luxury goods and experiences.
It may seem silly. But we honestly believe that is exactly what is going on right now.
Back in the 1970s, ‘80s, and ‘90s, the so-called “American Dream” involved going to college, getting a job, saving up some cash, and then putting that money into a little home in suburbia with a green lawn and white picket fence.
That American Dream is now dead for most people.
Why? Because back in the 1970s, ‘80s, and ‘90s, homes were affordable.
That is no longer the case.
Homes today are as unaffordable as they’ve ever been. A recent Zillow survey found that more than half of Gen Zers and Millennials believe they’d need to win the lottery to afford a home.
They still believe owning a home is part of the American Dream. They still want to do it. But they simply cannot.
Homes are too expensive. And they’ve been too expensive for years now. Everyone’s calling for a housing market crash, sure. But home prices just keep going up and up and up. And even though prices have moderated in some areas, interest rates have soared, so affordability just keeps plummeting.
It’s a hopeless situation for many.
So, what are all those Gen Zers and Millennials doing now?
They’re throwing in the towel. They’re giving up.
Redefining the American Dream?
These younger generations have stowed away sizable portions of their bi-weekly paychecks for years now. They have thousands, tens of thousands, maybe hundreds of thousands stowed away in a bank.
That money was supposed to go toward a down payment for a home. But the home they want remains forever out of reach, so they’re taking that cash and buying what they see as the next best thing: fancy cars, designer handbags, and luxurious European vacations.
They’re taking all the money that the previous generation used for a home down payment and are spending it on luxury goods and experiences instead.
That’s why luxury spending rose 20% last year, even in the midst of a stock market crash and technical recession. Younger consumers are redefining the American Dream. Forget a home. Let’s see the world, drive fancy cars, and wear stylish clothes.
Wall Street has already identified this big shift.
Luxury sports car maker Ferrari (RACE) has raced to all-time highs. So has Cartier maker Richemont (CFRHF) and designer handbag maker LVMH (LVMHF). All three stocks are up more than 55% over the past year, all while the S&P 500 is basically flat.
Can this trend last? You ‘betcha.
The Final Word
The thing about luxury stuff is it can be addictive. Plus, there’s also the social media aspect to all of this. Younger consumers feel like they are constantly comparing the quality of their lives with one another.
Coolness and success are measured by stays in 5-star resorts, Gucci bags, and private jets.
Call it sick. Call it twisted. It probably is – but I’m not here to label it anything.
I’m here to help you make money from this big shift in consumer spending because I have a feeling it is here to stay.
Ferrari, Richemont, and LVMH stock are all expensive. They’re all pretty much trading at record-high valuation multiples. However, growth rates at each firm are also pushing toward record highs, so it looks like those stocks’ winning streaks could last for the foreseeable future.
And we’d be buyers on weakness.
But if you’re looking to juice your portfolio with stocks that have much more upside potential than Ferrari or Richemont, we highly suggest you take a peek at some of our top stock picks for 2023.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
