Facing the same problem. Filed a feedback report with devicctl diagnose and sysdiagnose logs.
FB16122816 (Xcode cannot install app in Watch SE 2)
jamesTheCruncher
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I'm using Xcode 12.4. After making some changes to a class (to be precise, I changed the data type of a function argument), I ran into this problem. I've never faced this error before. Doing a clean (Product -> Clean) helped me resolve this problem. Hope this helps someone.