Tiffany & Co. [NYSE:TIF] shares plummeted 10.22% overnight, closing at US$110.38.
The luxury jewellery company was one of many victims of the recent Wall Street massive market sell-off.
Even frontline runners such as Amazon [NASDAQ:AMZN] saw notable falls in the last 24 hours of trade.
As a result, the Dow Jones Industrial Average saw an 831 point plunge. It marks the biggest drop in the Dow Jones over the past eight months.
While it’s relatively straightforward to see why a publicly-owned blue chip stock like Amazon has suffered from the market crash, the same logic doesn’t necessarily apply to Tiffany & Co.
So why are they suffering?
Trade war takes away luxury
The trade war between China and the US has been bubbling away for a while now, and yet there are no sure signs of it ending anytime soon.
In fact, just earlier this week President Donald Trump turned the heat up a notch by reiterating his tariff threat of US$267 billion worth of Chinese imports. He insists he’ll enforce these tariffs once there is any sign of retaliation from Beijing over the already-imposed US$34 billion levy on Chinese goods.
Needless to say, this back and forth can go on for quite some time.
And this doesn’t bode well for the US$300 billion luxury goods industry, which relies on China for around a third of its sales.
In response to these tariff threats, Chinese officials have imposed a crackdown on shoppers returning home from overseas trips with suitcases filled with US and European products, particularly luxury and designer items. Such international purchasing methods are dampening China’s own luxury sector in Beijing and Shanghai.
China will not let the US get away with stealing more of their sales. And understandably, Chinese shoppers don’t want to be stuck at the border having a diamond ring confiscated, which they could have bought from one of their own country’s luxury retailers.
As such, US luxury retailers are feeling the heat of this trade war. Tiffany in particular has 16% of their last year’s sales revenue from China. If this stops, that’s a massive chunk of revenue that will disappear.
It seems then that investors are noticing all these signs of future company loss and are pulling out before this trade war continues to pull down the luxury goods industry even further.
But that’s not the only reason investors are pulling out…
More interest means less investment
The US market plunge is largely due to higher interest rates on US Treasury bonds, reaching their highest levels since 2011.
Higher interest rates mean more money is made from leaving it in the bank. So it only makes sense that the desire to invest has lowered. Why take a risk on stocks when you’ll make decent bank using the safe route?
On top of this, unemployment rate in the US is at its lowest in 50 years. This means people actually have the money in the bank to keep aside and grow. And it also makes it more likely that short-term interest rates will jump a few times within the next year.
Infecting the ASX
As to how long we’ll be down for, that is yet to be determined.
Keep an eye on this space for the latest.
For Money Morning
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