Personal Finance

How the Fed crushed the luxury-watch boom

Rolex Milgauss

Rolex

  • The secondary market for luxury watches has sunk to its lowest level in over two years.

  • The WatchCharts market index and has slumped 37% from a record high in March last year.

  • Elevated interest rates and heightened economic uncertainties are seen as sapping demand.

Since late 2022, Wall Street has been rife with predictions for the Federal Reserve’s interest-rate increases to wreak havoc in the US economy and stock market.

While the broader economy has held up surprisingly well, the monetary blitzkrieg has sparked a downturn of a different kind — a rout in the secondary market for luxury watches.

The WatchCharts Overall Market Index — which tracks the prices of 60 timepieces from top brands including Rolex, Patek Philippe, and Audemars Piguet — has plunged 37% from a March 2022 peak. A separate index for just Rolex models fell 31% over a similar period.

The US central bank’s aggressive monetary tightening from March 2022 through July this year is seen as a key reason for the slump in watch prices. Higher interest rates have fueled fears of an economic downturn, spurring investors to scale back luxury spending and boost savings. A setback in the crypto market, also precipitated by rate rises, has also hurt demand for watches.

The costliest timepieces suffered the worst declines. Those in the $50,001 to $100,000 price bracket slumped over 10% in the past 12 months, while the $10,001 to $20,000 group fell about 7%, according to WatchCharts data. The $5,001 to $10,000 band also dropped 7%.

Luxury watches have underperformed stocks since March 2022, when the Fed started raising interest rates. The S&P 500 index of US large-cap shares is up by over 12% since then.

Certain chronometer brands have felt the bite more than others. The Rolex Market Index, which tracks the 30 most valuable models, is down 8% from a year ago, while the Patek Philippe index lost 16%. Audemars Piguet saw the sharpest losses, down 19% year on year, WatchCharts data showed.

When the “everything rally” was in full swing earlier in the pandemic, luxury watches were no exception. Surplus cash was piling into all kinds of alternative investments — such as nonfungible tokens and meme stocks — opulent timepieces were swept along with the tide.

Prices of Rolexes, Patek Philippes, and Piguets reached record highs in early 2022. Preowned watch sales reached $22 billion in 2021 — nearly one-third of the $75 billion luxury-watch market, a report from Boston Consulting Group found.

Despite the declines over the past year, prices have climbed considerably higher over the longer term, outperforming the stock market. The Rolex index is up by more than 42% from five years ago.

“Luxury watches have performed well, especially over the long term, in comparison with traditional investment categories,” BCG said in a report published earlier this year. “From August 2018 to January 2023, average prices in the secondhand market for top models from the three largest luxury brands — Rolex, Patek Philippe, and Audemars Piguet — rose at an annual rate of 20%, despite broader market downturns during the pandemic, compared with an annual rate of 8% for the S&P 500 index.”

This article was originally published on July 30, 2023.

Read the original article on Business Insider

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