Introduction:
The secondary market for luxury watches is experiencing a significant decline, reaching its lowest level in over two years. The WatchCharts market index, which tracks the prices of top luxury timepieces, has slumped by 32% from its all-time high in March last year. The downturn is attributed to elevated interest rates and increased economic uncertainties, which have dampened demand for luxury timepieces. As the Federal Reserve continues its aggressive monetary tightening, investors are scaling back luxury spending and turning to savings, resulting in a rout in the secondary market for luxury watches.
The Impact of Interest Rate Increases:
The US central bank’s monetary tightening over the past five quarters is considered a key factor behind the decline in watch prices. Higher interest rates have sparked concerns about an economic downturn, prompting investors to be cautious with luxury expenditures. The crypto market has also been affected by rate hikes, further diminishing demand for luxury watches.
The Severity of the Downturn:
Luxury watches in the higher price brackets have experienced the steepest declines. Timepieces priced between $50,001 and $100,000 have seen a slump of over 15% in the past year, while watches in the $10,001-$20,000 range fell by 10.4%. Even the $5,001-$10,000 category recorded a drop of 6.8%. Compared to stocks, luxury watches have significantly underperformed since the start of interest rate increases in March 2022.
Brands Affected:
Certain luxury watch brands have been impacted more than others. The Rolex Market Index, which tracks the top 30 most valuable models, is down by 12.5% from a year ago, while Patek Philippe’s index lost 18%. Audemars Piguet suffered the sharpest losses, with a decline of almost 20% year-on-year. These brands, which were once soaring to record highs, have faced a challenging period amid the ongoing economic uncertainties.
Past Performance and Long-Term Prospects:
Before the downturn, luxury watches enjoyed a bullish market during the pandemic period, benefitting from the “everything rally.” Prices of top brands, such as Rolex, Patek Philippe, and Audemars Piguet, reached record highs in early 2022, and preowned watch sales totaled $22 billion in 2021. Although the past year has seen declines, luxury watches have outperformed the stock market over the long term. The Rolex index, for example, has grown by over 55% in the last five years.
Conclusion:
The luxury watch market is currently facing a downturn due to elevated interest rates and economic uncertainties. The aggressive monetary tightening by the Federal Reserve has led to a decline in watch prices, as investors prioritize savings over luxury spending. Brands like Rolex, Patek Philippe, and Audemars Piguet have seen significant declines in their market indices. Despite the recent setback, luxury watches have historically performed well, outperforming traditional investment categories in the long term.
