Has the art market peaked? Here are 3 signs experts are watching for as a recession looms

The Art Detective is a weekly column by Katya Kazakina for Artnet News Pro that lifts the curtain on what is really current on the art market.

In Basel, the sky was a clear blue, the sun shone brightly and visitors waded into the Rhine to cool off. The mood was suitably euphoric. At last week’s Swiss fair, galleries sold art – in large quantities – accompanied by triumphant titles: A 40 million dollar bourgeois! A $15 million bacon!

Out of sight, however, the heat and humidity were building up. The storm was coming.

“I think we’ve already passed the top of the market,” a fund manager at a major bank told me. “We are over the hump and now we are going down.”

The art market often seems disconnected from the real world. As Art Basel reaped the fallout from May’s record $2.7 billion auction in New York, Russia’s brutal invasion of Ukraine approached the four-month mark, financial markets slipped into territory. “bearish,” governments were raising interest rates to try to contain inflation, and cosmetics giant Revlon declared bankruptcy.

The value of Bitcoin over the past year. Screenshot via Google.

Calling the top of any market is tricky. Things take time to settle. It’s not about ifbut when and How? ‘Or’ What wrong it will hit.

“You never know what triggers the crash,” said collector Alain Servais, who began his career in the financial industry the day the market crashed in 1987. “I’ve been through five or six crashes What strikes me is that the day before, the articles in the newspapers are still good, but the conditions are there, and that’s what worries me.

As a journalist, I’ve covered countless robust auctions and fairs during times of economic volatility and political instability. I only remember a handful of instances where things really bombed. There was the bloodbath of October 2008 in London – the Phillips evening sale where many after many after many after many failed. There was the fall of 2016, when zombie formalism imploded. There were individual artist markets whose prices went from boom to dust (remember Anselm Reyle?).

Here are three key metrics art market watchers are currently watching as they try to gauge what’s next – and why, in each case, the noise will be harder to break than it was. before the pandemic transformed the art market.

S&P 500 1-year chart.

S&P 500 1-year chart. Screenshot via Google

1. Inflation and interest rates

Since the financial crisis of 2008, the growth of the art market (and other alternative asset classes) has been largely supported by historically low interest rates. Art lending flourished as financially savvy collectors leveraged their Warhols and Rothkos for essentially free money to buy more art or fund other investments.

Those days are now over. US inflation hit 8.6% in May, a four-decade high. To stem the tide, the Federal Reserve raised its short-term reference rate 0.75%, the largest rate increase since 1994.

Meanwhile, the stock market is a sea of ​​red, with blue-chip shares of Amazon, Apple and Alphabet in decline and major indexes like the S&P 500, Dow Jones and Nasdaq on the market. bearish. Bitcoin is a wild mess.

Guillaume Goetzmann is known for his research on the relationship between the stock market and the art market. “There is a lag,” said the faculty director of the International Center for Finance at the Yale School of Management.

Indeed, worldwide auction sales fell by a modest 12% in 2008. It was not until the following year that the financial crisis had a real impact on the art market, leading to a further drop in 36% of total sales, at $6.4 billion, according to Artnet Price. Database.

“The art market is like a Brontosaurus, whose tail you cut off,” Servais said. “You know, by the time the information gets to the brain, it can take a few months.”

But even during this period, many wealthy people remained immune to financial disasters. Some, like Eli Broad and Mitchell Rales, have significantly increased their collections. In February 2009, at the height of the market trough, Christie’s managed to set a new private collection record with the $484 million sale of art by Yves Saint Laurent and Pierre Bergé.

“In 2008, 2009, we saw that at the very high end of the art market, things seem to be quite stable,” Goetzmann said.

Complicating factor:

This time around, market participants are faced with an additional element: inflation, which pushes prices at the top. “We have this funny situation,” Goetzmann said. “I don’t know which direction the average is going to take given these conflicting forces.”

Auctioneer Adrien Meyer selling Jackson Pollock's Number 31 (1949) Image courtesy Christie's.

Auctioneer Adrien Meyer sells Jackson Pollock’s Number 31 (1949) Image courtesy of Christie’s.

2. Auction Results

Many observers regard public auctions as the barometer of the market. A slowdown will result in a sharp drop in volume.

“Shipments are made between six months and three months in advance for auctions,” Servais said, noting that most of the May auctions took place earlier in the year when “people thought inflation was tentative and the market was stable. I don’t think it would be possible to have that kind of shipment in the current uncertainty,” he said.

The first test of the moving market comes at the end of this month during the 20th and 21st Century London evening sales at Sotheby’s, Christie’s and Phillips. “I don’t think it was easy to get quality material for the upcoming London sales,” said New York art adviser Wendy Cromwell.

The big auctions in New York in November will provide an even clearer picture of the art market environment. “I don’t know if people are going to be nervous about auctioning in the fall,” Cromwell said.

Recent market contractions have led to a drastic reduction in premium supply. Auction houses generally become pickier, offering fewer guarantees. Shippers have cold feet. Sales are getting thin.

In 2009, the number of coins consigned worldwide with a low estimate between $1 and $10 million fell by almost 60%. The number of works consigned with a low estimate of $10 million or more fell nearly 75% to just 12.

Complicating factor:

Auction houses have gotten smart and learned how to increase their sale rates by simply removing lots that aren’t attracting enough interest before the sale. This way, instead of being bought (and “burned”) publicly, they can be offered privately later. And they don’t drive the auction rate down, making the true state of play harder to discern.

A CryptoPunk from Larva Labs.  during a media preview on June 4, 2021 at Sotheby's.  (Photo by TIMOTHY A. CLARY/AFP via Getty Images)

A CryptoPunk from Larva Labs. during a media preview on June 4, 2021 at Sotheby’s. (Photo by TIMOTHY A. CLARY/AFP via Getty Images)

3. Speculation

Since the start of the pandemic, new money has flowed into the more speculative segments of the art market, such as NFTs and emerging art. Works by untested artists sell for millions of dollars at auction. Last year, ultra-contemporary art (works by artists born after 1974) accounted for $742.2 million of the $16.3 billion fine art auction market, up 190 % compared to 2020. Even evening auctions are filled with reverse works by artists most people have never heard of, art adviser Allan Schwartzman told me last week. Some call it “meme art.”

“There often seems to be a phenomenon where the most recent beneficiaries of an art market boom are hit the hardest by a sharp downturn,” said Natasha Degen, chair in art market studies at the Fashion Institute of Technology in New York.

Among these were contemporary French art from the early 1960s and non-conformist Russian art from the years following the collapse of the Soviet Union in the 1990s, she said. More recently, we have seen artists associated with zombie formalism suffer the same fate.

“The biggest names associated with an art market boom – those that have achieved extraordinary prices at auction, for example – will almost certainly suffer from a downturn, although they are the most likely to rebound, as they have the largest number of individuals and institutions that have a stake in their continued success,” Degen said.

Complicating factor:

Galleries and artists have woken up since the collapse of zombie formalism, which had almost no institutional traction. Galleries nowadays promote “BOGO” deals, selling coveted pieces only to collectors who promise to buy a second work and donate it to a museum. Whether this new development will prevent young artists from being wiped out by the market remains to be seen.

Look forward

Back in Basel, after days of heat and humidity, a storm finally hit around 2 a.m. Thursday, inundating the bustling crowd of dealers, artists and collectors at the Kunsthalle Basel, a nighttime venue in popular outdoors.

“It didn’t last long, but it was brutal and surprising,” said Servais, who couldn’t help but notice a certain parallel between weather conditions and the art market.

“Exactly the same as the sky above Art Basel, business is going very well right now, everyone is happy. But that doesn’t mean a storm can’t happen tomorrow.

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