The last year has seen volatility across financial markets. At every turn, markets have been pummeled and it seems there are few safe places for your cash. Concerningly, the S&P 500 and bonds have been positively correlated this year, falling in lockstep. All the while, the art market has grown, as indicated by Art Market Research’s All-Art Index. As an asset class, fine art boasts a low correlation of only 0.12 to developed equities and acts as an inflation hedge, making it all the more favorable in this highly correlated and inflationary environment. The strength of the art market this year echoes what we have seen in the past. Historically, the art market is relatively insulated from economic turmoil and tends to be last to decline and first to recover in recessionary periods, as seen in the 2008-2009 global financial crisis.
Heather James has received many questions regarding the art market’s performance during volatile economic cycles. To respond, we are happy to share this video of gallery co-founder Jim Carona offering his in-depth analysis on the topic. Looking at the art market’s resilience during the 2008-2009 recession, we present our key observations as to why the art market has proven to be more resilient than other assets.
CURRENT MARKET TRENDS
All-Art Index Chart showcases relative art market strength from September 2021 to September 2022
- 2022 has been a year of volatility in traditional markets. This is seen in the loss of $9 trillion in U.S. accounts at the close of Q2. The values of some currencies are falling like the Euro and the Pound, the latter of which hit a historic low. Since September 2021, the S&P 500 has dropped 19% while in the same period the all- art index value has increased 23%.
- In recessionary periods, the art market has been the last to decline and first to recover. We saw this during the global financial crisis of 2008-09.
- While the S&P began declining in mid-2007, the all-art index did not trend down until late 2008.
- At its lowest point, the art market saw a 19.3% decrease from pre-recession highs, while the S&P saw a 47.7% decrease. The S&P 500 took four years to return to its pre-recession high from the low point, and this bounce-back occurred in under a year for the art market.
- Measured from the pre-recession highs, the art market took just 20 months to regain, while the S&P 500 took 5.5 years.
- Collectors have historically held onto their artwork during recessionary periods, further contracting supply and often leading to a high-demand situation.
S&P 500 Index Chart showcases traditional financial market volatility from October 2021 to September 2022
HISTORIC RECESSIONARY TRENDS
- In the early 2000s, the art market experienced a much milder recession than the financial markets. The peak to trough decline of the S&P 500 was 49.1%, whereas the all-art index only declined 18.82%.
- Fine art has a low correlation of 0.12 to the stock market, partially accounting for the strength of the art market during economic turmoil.
- In February 2009, while traditional financial markets remained down, the hugely successful Yves Saint Laurent sale at Christie’s totaled nearly $484 million, setting the record as the most expensive private collection at auction. 95.5% of all lots sold.
ASSET CORRELATION – 2020
Source: Citi Private Bank Global Asset Allocation Team, as of October 31, 2020. Correlations are measured on a scale of 1 to -1, where 1 = two asset classes move in the same direction all of the time, -1 = two asset classes move in the opposite direction to each other all the time. Art represented by the Masterworks.io Total Art, Contemporary Art and Impressionist Art Indices. 2020 Masterworks.io LLC; All rights reserved. Indices revised as of November 2020.
“When our market slows down, fewer things become available to sell, but anyone waiting around to get a 30% discount on a masterpiece may be disappointed and frustrated. We’re kind of like the oceanfront property that everyone’s waiting for the right moment to buy, but there’s a lot of money waiting for that moment. As soon as the price for anything goes down even a little bit, people start to jump in.” – Charles Stewart, CEO of Sotheby’s