The most recent auctions in late June and early July display an important dip both in sales and prices, after the sales of May had reached a historic peak. There are many signs that we are now entering the beginnings of a global recession—as testified by the rise in interest rates, major corrections on both stocks and crypto markets, as well as a troubled geopolitical context—which may negatively impact the art market in more than just the short term. The consequences were already felt these last few weeks on the emerging artists market, where speculative artists recorded important downfalls in prices. For all these reasons, collectors and investors alike are more than ever faced with the necessity of understanding current and past recessions cycles and how they relate to the art market in order to have a clear vision of future prospects.
A first aspect in which the art market can be distinguished from other economic sectors, is in regards to the correlation of its value to the state of the general economy. The study of the impact of past recessions on the art market easily unveils a general trend: the art market’s dips in value are far less dramatic than that of stock prices, and the rebounds are both quicker and stronger. These elements are well established in the chart of the Artprice100 index versus S&P 500, where the value accretion on the art market is seen to rapidly surpass that of the S&P 500 post-crisis. In addition, the value accretion from 2000 to 2018 was 2.5 times more important on the former.
The analysis of the 2008 crisis and the following rebound is emblematic in this regard. In November 2011, after the 2010 dip on the stock market, where it lost close to 400 points, Sotheby’s November Post-War & Contemporary Evening Sale recorded its third highest result, only three years after its previous record at the May 2008 sales—an all-time record at the time. In her No. 9, 2011 paper on the matter in The New York Times, Carol Vogel quotes a Manhattan dealer explaining that “There (was) a flight out of cash into what is called art.” In particular, the sales displayed a few record sales for a few blue chip artists—such as Clyfford Still’s $61.7 million historic high and Gerhard Richter’s $20.8 record at the time. Notably, it took only three years for the art market to regain the levels of 2008, versus five years for stock markets. Hence, the blue chip segment of the art market remained a safe-haven for investors after 2008, as the graph above clearly shows. This safe-haven effect does not however entail a lack of correlation between both markets, as a dip in the stock exchange has always been seen to trigger a momentary decrease in art sales.
Another crisis—this time limited to the art market—came from the 2014 Zombie Formalism bubble, which resulted in drastic drops in prices for many young speculative artists of the time. After a few collectors had acquired works by young emerging artists such as Jacob Kasay or Lucien Smith and flipped them shortly thereafter at auctions, their prices had quickly skyrocketed, before crashing down in the following years. For instance, one of Lucien Smith’s Rain Paintings was acquired for a record-breaking $372,000 in 2014. Three years later, a larger painting from the same series was sold for $37,500. So where did the bubble come from? In part, it was most certainly linked to a positive context of economic growth: the vast amount of liquidities —due to historically low interest rates—provided by the growth of the American economy in the early 2010s, during its recovery from the 2008 subprime crisis. On top of that, investors were looking for rather safe financial investments post-crisis, and the art market had already proved its resilience during the 2008 crash. Lastly, the 2010s also saw the emergence of a new type of art collectors: from the traditional senior businessman concerned with the long-term value of artists, it had evolved towards a younger generation of collectors worldwide who are more prone to short-term investments. The art market is thus not exempt from speculative bubbles and sudden price drops and corrections. As we will see shortly, although today’s economic context is vastly different, some of the more recent trending figurative artists of the art market can be somewhat reminiscent of such bubbles: their prices skyrocketed rather quickly in the last few years, but the most recent prices at auction sales have been less than encouraging.
The years 2020/2021, in the midst of the Covid-19 pandemic, are yet another context which provides great insight into how the art market correlates to the general economy. In truth, what was witnessed initially in 2020 was mostly a supply crisis, as worldwide lockdowns created a unique situation where art fairs vanished and collectors were unable to travel. In fact, encouraged once more by low interest rates, the demand for artworks was not merely very strong: it was about to reach new heights. This was confirmed by the evolution of the art market in the last two years, which saw a vast amount of cash flow into the Contemporary Art segment of the market (see graph below, which compares the Contemporary Art segment to the Artprice Global index). As testified by the 2021 report issued by Artprice, in 2020/2021, the Contemporary Art segment represents 23% of the art market, in comparison to 3% in 2000/2001. This fast-paced increase in demand is also strongly linked to the incredible rise of the crypto market in the same years. The context of 2020/2021 was hence similar to that of the post-2008 economy insofar as there was a great deal of new liquidities which stimulated growth rapidly—driving an increase in value on both established blue-chip artists and young and trendy commodities of the art market.
This brings us to the current economic context, in which the art market is evidently entering a phase of caution, as the face of the world economy has changed rapidly in the last year. One major factor which has been at play for a while now is the capacity of Chinese investors to take money out of their country in sufficient amounts. Considering China was accountable for 40% of sale proceeds on the art market in 2021 (Artprice report), suffice to say the constraints on Chinese investors and the numerous strict lockdowns have an ongoing impact on current demand. And indeed, the second quarter of 2022 has shown a considerable slowdown of the Asian share of sale proceeds. It is thus necessary to keep a keen eye on the evolution of these factors, as the ability for Asian collectors overall to invest freely will be a key indicator of the art market’s health in the coming months. In addition, other factors have negatively affected demand, making investors and collectors alike more hesitant: the recent rise of interest rates—surged by the Federal Reserve’s historic hike of its benchmark interest rate, in June 2022—as well as the collapse of the crypto bubble since April 2022 and price corrections on the stock markets.
The consequences have already been felt in the latest auction sales results, which are trustworthy indicators of current trends. Indeed, the recent sales of late June and early July have been anything but promising for emerging artists, as a few artworks by young rising stars of the art market were hammered off for much lower prices than expected. A notable example is the painting “TBT Brussels 2020” by Gagosian’s protegee Anna Weyant, sold for slightly less than $500,000 USD at Christie’s London on June 28th, compared to the $1.5 million attained by an aesthetically similar painting of the same size at Christie’s New-York in May 2022. Another example is Christina Quarles’ painting “Butt hidden in Lacy Groves (Hell Must Be a Pretty Place)”, sold for less than $430,000 at Sotheby’s London in June, bringing the artist back to her 2019/2020 price range, far from the results that were expected after her recent record of $4.5 million at Sotheby’s New York in May. In comparison, “Common Ground”—a painting of the same size as “Butt hidden in Lacy Groves”—was selling for $685,000 in November 2021. One can also mention the recent prices of three works by Shara Hugues, with prices ranging from $830,000 to $890,000 compared to the $1.2 million to almost $3 million price range attained for works of similar sizes in March, April and May 2022. It should be noted that the auction sales of June traditionally display less impressive results than that of May on the art market—not to an extent, however, which could explain away these less than encouraging results.
So what can most likely be inferred from all the current factors at play? The first hypothesis which can be made is that the high prices realized at last May’s auction sales won’t be reached again for a little while for certain artists. Our 2020 forecasts might just be on point this time, as there will most likely be price corrections for the “rising stars” segment of the art market in the coming months. Hence, investors and collectors alike will have to be all the more cautious in regards to the aesthetic qualities and prices of the artworks they acquire. This will undoubtedly favour artists who—if they are not already considered blue chip—already have a sufficient degree of institutional recognition with little doubt concerning their true aesthetic value, as well as a surge of demand for new young promising artists. As a collector in such a context, one must hence be conservative and mostly buy reasonably priced artworks from blue chip artists, as well as artworks of strong importance in the body of work of trustworthy emerging artists.