Will the art market shrug off broader market upheaval? (Image source: Daylife)
Unless you’ve been unconscious for the past week, you’re probably aware that the stock market tanked after Ben Bernanke stated that the Fed may soon start to unwind its quantitative easing program. The big equities sell off seems to have stopped, for now at least, but the stock market dive has led to inevitable speculation about whether the art market could be next.
There are no easy answers to this question. Supporters of art as an investment argue that art is not correlated to traditional asset classes. They say that many people view art and other so-called real assets as a place to protect their money and hedge against inflation when things get hairy elsewhere in the markets.
Unfortunately, the argument that art is not correlated to other assets is not actually true, or at least not all of the time. Art market movements can be very closely aligned to stock market gyrations. When the stock market sold off at the end of 2008, the art market also took a hit. The global stock sell off of mid-2011 when the euro zone debt crisis was at its peak and the U.S. lost its triple-A credit rating caused jitters across the art market too.
The truth of the matter is that the art market gets rattled pretty easily. “The art market is very much based on confidence and is easily spooked,” Michael Plummer, co-founder of Artvest said at the Art Investment Council panelist discussion that I reported on last month.
He pointed out that this can happen in the space of 24 hours. “In the fall of 1990, I was at a contemporary art auction at Sotheby’s. In that one night, the market crashed. Suddenly, half the lots didn’t sell and very important paintings were bought in. The same happened again in the fall of 2008.”
So while the current indicators look pretty solid (the big Impressionist, Modern and Contemporary sales in London this month have produced decent, if not amazing, results), all that could change in an instant.
What about art in relation to quantitative easing, though? If art is supposed to be a safe haven and a defensive purchase and the Fed is signalling that the economy is finally doing better, shouldn’t people be selling their Warhols and buying growth stocks? After all, the price of gold and silver has also plummeted recently and people love to lump SWAG assets (Silver, Wine, Art and Gold) in the same bucket. Shouldn’t the longer-term trend be that the stock market rebounds and continues to perform well, while the art market weakens?
I suspect that while some people look at art as a safe haven purchase, plenty of others buy it because they think they will rack up massive returns. The more the second motivation is apparent in the art market, the more art will be correlated to equities. However, even more people buy art just because they love it. Until they no longer have the means to take it home, they will continue buying, come what may. With all these different buyers now in the mix, calling the direction of the market is tough indeed.
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