The Rolex recession How the Fed crushed the luxury watch boom
The Rolex recession How the Fed crushed the luxury watch boom
The Rise and Fall of Luxury Watches: A Tale of Market Swings
Image Source: Insider.com
Luxury watches, once a symbol of prestige and opulence, have recently seen a sharp decline in their secondary market. The WatchCharts market index has slumped 32% from its all-time high in March last year, reaching its lowest level in over two years. Elevated interest rates and heightened economic uncertainties are believed to be the driving factors behind this slump in demand for luxury timepieces.
The Unexpected Consequences of the Federal Reserve’s Interest Rates
Since late 2022, Wall Street has been abuzz with predictions of the Federal Reserve’s interest-rate increases wreaking havoc on the US economy and stock market. However, contrary to expectations, the broader economy has held up surprisingly well. Instead, the aggressive monetary tightening 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 experienced a significant decline of 32% from its March 2022 peak. The decline is even steeper in the Rolex models index, which fell 27% over a similar period.
Money and Time: The Impact of Higher Interest Rates
The US central bank’s aggressive monetary tightening over the past five quarters is considered a key reason for the slump in watch prices. Higher interest rates have fueled fears of an economic downturn, leading investors to curtail luxury spending and prioritize savings. The decline in the crypto market, also triggered by rate rises, has further exacerbated the decline in demand for watches.
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The most expensive timepieces have suffered the greatest declines. Luxury watches in the $50,001-$100,000 price bracket slumped over 15% in the past 12 months, while the $10,001-$20,000 group fell 10.4%. The $5,001-$10,000 category saw a 6.8% drop.
Luxury Watches vs. the Stock Market
Luxury watches have underperformed stocks since the Fed began raising interest rates in March 2022. While the S&P 500 index of US large-cap shares has risen by about 8% during this period, luxury watches have experienced significant declines.
Certain chronometer brands have felt the bite more than others. The Rolex Market Index, which tracks the top 30 most valuable models, is down 12.5% from a year ago, while the Patek Philippe index lost 18%. However, Audemars Piguet suffered the sharpest losses, down almost 20% year-on-year.
From Boom to Bust: A Tale of Preowned Luxury Watches
During the pandemic period, when the “everything rally” was in full swing, luxury watches were no exception. As surplus cash poured into alternative investments such as NFTs and meme stocks, opulent timepieces rode the wave of enthusiasm.
Rolexes, Patek Philippes, and Audemars Piguet watches reached record-high prices in early 2022. Preowned watch sales reached $22 billion in 2021, accounting for almost a third of the $75 billion luxury watch market, according to a report from Boston Consulting Group.
The Long-Term Outlook for Luxury Watches
Despite the recent declines, luxury watch prices have climbed considerably higher over the longer term, outperforming the stock market. The Rolex index, for instance, has increased by more than 55% in the past five years.
According to a report published earlier this year by the Boston Consulting Group, “Luxury watches have performed well, especially over the long term, in comparison with traditional investment categories. 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.”
While the current market conditions may seem discouraging for luxury watches, their long-term value and resilience in the face of economic fluctuations should not be overlooked. As interest rates stabilize and economic uncertainties subside, luxury watches may once again regain their allure as an investment and status symbol. The saga of luxury watches in the market continues, with its plot twists and turns providing an ongoing narrative for enthusiasts, investors, and collectors alike.
