The focus now is on whether US stocks can catch up to European stocks, which have had a strong start this year. However, LVMH is falling behind due to weak sales in its drinks division in the US and China. LVMH, once Europe’s most valuable company, has lost ground to Hermes, showing poor performance since March. The luxury market is important, as evidenced by Hermes’ ongoing success, but the overall sector in Europe appears fragmented.

LVMH Stock Performance

LVMH’s stock has dropped 20% in 2025, and recovery looks unlikely since earnings forecasts are not promising. In contrast, Nvidia shows positive growth expectations, though some estimates are slightly lower. The Luxury 10 index has gained 5% this year, with a 120% return over the last five years. However, problems at LVMH may hinder European stocks from outperforming US stocks, particularly as US tech begins to recover. Overall, the future of Europe’s luxury sector appears uncertain due to LVMH’s challenges, which could affect the strength of the European market. Meanwhile, growth in US tech poses a challenge for European stocks this quarter.

Economic Balance Between Regions

We are witnessing a shift in the balance between regions. European equities started strong this year, but their lead now relies on a few key players that are showing signs of weakness. One major player, LVMH, has been losing momentum due to disappointing results in its drinks segment in both the US and China. It’s not just a company slipping; it’s a former leader suddenly struggling. Since March, Arnault’s company, once seen as a barometer of European strength, has slowed considerably. The title of Europe’s top-valued firm now belongs to Hermes, highlighting internal divides within the luxury sector. Some companies are thriving while others are quietly declining. As traders, we must be alert to the emerging pressures. The 20% drop in LVMH’s valuation this year is significant and reflects a change in sentiment. Forward earnings expectations remain low, suggesting relief is not on the horizon. This matters because luxury had been a steady performer for European equities. With one of its biggest supporters weakened, that stability may falter. Meanwhile, across the Atlantic, tech stocks are recovering. Traders should note the strength of companies like Nvidia. Although forward estimates have dropped slightly, confidence in US growth stocks remains strong. This contrasts with the cautious outlook for parts of Europe’s luxury sector. The Luxury 10 index is up 5% this year, and five-year returns are solid. However, these numbers hide concerns within the sector. What was once a clear indicator of wealth and pricing power now requires careful selection. European luxury can no longer be viewed as a single trade. It’s crucial to identify which companies are performing well and which are not when building investment positions. In the coming weeks, this divergence will be important. It’s not just a battle between east and west, or luxury versus growth. We’re witnessing a test of typically reliable sectors. Some are holding steady, while others slowly deteriorate under pressure. This is when refining strategy becomes vital. We need to reconsider how we adjust exposure, manage risks tied to broader estimates, and interpret earnings surprises. Maintaining investments in growth-oriented companies with stable or rising sentiment could continue to yield benefits. If pressure on certain European brands persists, performance will likely favor US companies. What once felt balanced is now shifting. We must adapt to these changes. Create your live VT Markets account and start trading now.

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