Photo courtesy of Sotheby’s.
On Wednesday, the Dow Jones Industrial Average closed above the 20,000 mark for the first time in history. What, if anything, does this mean for the art market in the near- and medium-term?
The answer to that question has several parts. What does the Dow’s rise say about the underlying economy? Who is impacted by it, either materially or psychologically? And lastly, how do those factors influence the behavior of art market actors?
The stock market run-up theoretically reflects optimism in the economy’s prospects, manifested in increased appetite for risk and growing confidence in firms’ future earnings. But Wall Street Journal columnist Greg Ip argued this week that this confidence may be slightly misplaced. While firms are likely to benefit from President Donald Trump’s aversion to regulation, this week’s Dow record has stocks valued at a historically high multiple: on average, nearly 21 times their prior 12 months’ earnings. Meanwhile, the ingredients that would boost the overall economy—business investment and productivity growth—have been largely AWOL in recent years.
That said, the immediate impact of a stock market bull run is that investors feel richer. The so-called “wealth effect” tends to boost spending, whether it’s on clothes, real estate, or art. And since ownership of stocks is concentrated among the wealthy (according to one analysis of Federal Reserve data, the top 10% of equity holders in America own 87% of stock assets), that wealth effect is being felt by the same group of people already predisposed to buying art.
This is welcome news. Over the past 18 months, the art market, like the economy at large, has been characterized by uncertainty. This has led to a to tightening of the supply for top-end consignments at auction and a retreat from riskier portions of the primary market—particularly emerging art.
The wealth effect will have different impacts at different tiers of the market. It will likely firm up the lower end of the art market, said Don Thompson, economist, art market commentator, and professor emeritus at York University’s Schulich School of Business, as younger collectors feel more secure in their jobs and the future value of their portfolios. By contrast, the ultra-wealthy tend to feel wealthy all of the time, so he predicts little impact on their buying habits.
“The people who buy at top of the market are already rich, and getting richer doesn’t change much,” he said.
Thompson hypothesized, however, that the high end of the market could be impacted indirectly, through increased confidence on the part of potential sellers. Dealers and auction house specialists have complained that uncertainty has led to a lack of quality material being brought to market, despite claims of persistent demand for those works. A roaring stock market could convince sellers that their works will indeed be able to achieve above-estimate results in a saleroom environment.
Todd Levin, director of Levin Art Group, said he sees the impact on the art market coming less from a notched record in the stock market and more from expectations that the Trump administration will cut taxes for the wealthy and favor business interests. He predicts the current trend of stronger demand for blue-chip and established mid-career artists to continue, as collectors invest in the art market’s relatively safer assets.
That preference stems in part from the fact that art production, unlike other sectors of the economy such as manufacturing or financial services, faces a strong headwind from the Trump administration, which has proposed eliminating the National Endowment for the Arts and the National Endowment for the Humanities. Those entities help fund some of the smaller museums and grassroots institutions supporting emerging, younger, and often more radical voices. If that segment of the cultural infrastructure collapses, Mr. Levin said, galleries will find it harder to identify and bring on new artists.
“The landscape’s going to wither a bit,” he said. “It’s going to be a little more conservative.”