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The great Rolex recession is here: How the Fed crushed the luxury-watch boom

The great Rolex recession is here: How the Fed crushed the luxury-watch boom


Rolex

  • The secondary market for luxury watches has fallen to its lowest level in more than two years.

  • The WatchCharts stock index has fallen 37% from its record high in March of last year.

  • High interest rates and increased economic uncertainty are seen as undermining demand.

Since late 2022, Wall Street has been rife with predictions that the Federal Reserve’s interest rate hikes could wreak havoc on the U.S. economy and stock market.

While the economy as a whole has held up surprisingly well, the currency blitzkrieg has triggered a downturn of a different kind: a rout of the secondary market for luxury watches.

The WatchCharts overall market index – which tracks the prices of 60 watches from major brands, including Rolex, Patek Philippe and Audemars Piguet – has plunged 37% from its peak in March 2022. A separate index for just Rolex models fell 31% over a similar period.

The US central bank’s aggressive monetary tightening from March 2022 to July this year is considered one of the main reasons for the fall in watch prices. Rising interest rates have fueled fears of an economic slowdown, prompting investors to cut luxury spending and boost savings. A setback in the crypto market, also precipitated by rising rates, has also hurt demand for watches.

The most expensive timepieces suffered the worst declines. Those in the $50,001 to $100,000 price bracket have fallen more than 10% over the past 12 months, while the $10,001 to $20,000 group has fallen about 7%, according to the Data from WatchCharts. The $5,001 to $10,000 bracket also fell 7%.

Luxury watches have underperformed stocks since March 2022, when the Fed began raising interest rates. The S&P 500 index of large-cap U.S. stocks has since risen more than 12%.

Some brands of chronometers have been affected more than others. The Rolex stock index, which tracks the 30 most valuable models, is down 8% from a year ago, while the Patek Philippe index has lost 16%. Audemars Piguet recorded the largest losses, down 19% year-on-year, according to WatchCharts data.

When the “everything rally” was in full swing at the start of the pandemic, luxury watches were no exception. As excess cash piled up in all manner of alternative investments – such as non-fungible tokens and meme stocks – opulent watches were swept away by the tide.

Prices for Rolex, Patek Philippe and Piguet hit record highs in early 2022. Pre-owned watch sales hit $22 billion in 2021, nearly a third of the $75 billion luxury watch market , according to a report from the Boston Consulting Group.

Despite last year’s declines, prices have risen significantly over the long term, outperforming the stock market. The Rolex index is up more than 42% from five years ago.

“Luxury watches have performed well, especially over the long term, compared to traditional investment categories,” BCG said in a report released earlier this year. “Between August 2018 and January 2023, average prices on the second-hand market for high-end models from the three biggest luxury brands – Rolex, Patek Philippe and Audemars Piguet – increased at an annual rate of 20%, despite a broader market slowdown during the pandemic. compared to 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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