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CAC 40 index signals that luxury goods is the new tech

Buy LVMH stock to benefit from strong dollar

The CAC 40 index is firing on all cylinders, helped by the resurgence of the luxury goods industry. The index jumped to a record high of €7,412, making it one of the best-performing indices in the market. It has jumped by more than 104% from the lowest point in 2020. The view among market participants is that luxury is the new technology sector.

Luxury goods are the new tech

Most of the stock market growth of the past decade were driven by technology companies, mostly from the United States. During the climb, investors ignored valuation metrics and instead focused on the companies growth.

It now seems that luxury goods brands have grown to become the new technology companies. This explains why the CAC 40 index is outperforming the tech-heavy Nasdaq 100 index. Most luxury brands like Hermes and Louis Vuitton have seen their valuations expand rapidly.

For example, Hermes International has a PE ratio of 54x, which is significantly higher than the Nasdaq 100 multiple of less than 20. Similarly, Louis Vuitton and Kering have PE multiples of above 25. Similarly, brands like EssilorLuxottica, L’Oreal, and Pernod Ricard have multiples in excess of 25.

Hermes has a multiple of 54, which is higher than Tesla’s 49.2. It is also more pricey than other companies like Apple, Microsoft, and Google.

The ongoing view is that buyers of luxury goods are more resilient and that they will continue buying in the coming years. Another reason is that China’s reopening will be key for luxury goods considering that China is the biggest market for these goods.

There are other important drivers for the CAC 40 index. For example, automakers like Renault and Stellantis have done well, helped by the reopening of China and the fact that Europe managed to avert an energy crisis.

CAC 40 index forecast

cac 40

CAC 40 chart by TradingView

The weekly chart shows that the CAC 40 index has been in a strong bullish trend in the past few months. As it jumped, the stock rose to the important resistance level at 7,362, which was the previous all-time high. It has formed a double-top pattern, whose neckline is at 5,632. In price action analysis, this pattern is usually a bearish signal. Therefore, bulls need to move above this resistance point.

CAC 40 has moved above all moving averages while the Relative Strength Index (RSI) has moved close to the overbought level. Therefore, as a trend-follower, I suspect that the index will continue rising as buyers target the key resistance level at €7,400.

The post CAC 40 index signals that luxury goods is the new tech appeared first on Invezz.

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