What Is the Lipstick Index? Which Stock Market Trends Does It Predict?

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Some analysts use unusual methods to anticipate the stock market. The lipstick index forecasts bear markets using cosmetic sales.

Leonard Lauder, a wealthy heir to the Estee Lauder fortune, was the source of the concept. With a market valuation of $81 billion, Estee Lauder is one of the ten biggest cosmetics companies in the world.

When consumer spending often declines during recessions, Lauder observed that his goods sales actually grow.

Consumers may cut back on discretionary products, but they still buy "affordable luxury," said Lauder. These products were makeup, not garments, jewelry, or designer bags.

Lipstick sales in particular, as well as sales of other cosmetics, aren't as impacted by inflationary pressures even when other sectors of the economy are struggling.

A tube of lipstick can sell for up to $35 despite having a production cost of only about $2.50. Additionally, the price rises in other sectors are not kept up with by the cosmetics business as a whole.

During the recession that followed the fall of the dot-com boom in 2001, Lauder came up with the phrase "Lipstick Index," but analysts have looked at past downturns and observed the similar phenomenon.

Investors who follow the Lipstick Index may discover possibilities to benefit even when the general market is down because the global cosmetics business generates over $500 billion in sales annually.

Estee Lauder, L'Oréal, and Beiersdorf are held by S&P 500 Consumer Staples Index, iShares S&P 500 Consumer Staples Sector Index, and MSCI Europe Household and Personal Products Index.

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