Last month’s $73million sale of Mark Rothko’s “White Center” by Sotheby’s set a record for post-war art. It also marked a new high for shares of the auction house. Despite a recent pullback of more than 10%, the shares have more than doubled over the past 18 months. Both the art market and Sotheby’s have seen similar run-ups before—and they ended poorly for investors.
The Japanese market bubble and its dot-com successor each precipitated large booms and larger busts. And in both cases, Sotheby’s stock acted as a canary in a coalmine—a leading indicator of when art-keen capital would evaporate, and a canny barometer of financial markets more broadly. Investors would be wise to keep an eye on it now.
From its public market debut in May 1988 to October 1989, Sotheby’s stock gained roughly 300%. But by early May 1990, it had dropped by over half. This is despite the art world’s continued frenzy. It wasn’t until 15 May of that year that Japanese businessman Ryoei Saito purchased Van Gogh’s “Portrait of Dr Gachet” for a then-record $117m. That purchase marked the end of the Japanese bubble-backed art boom. At a Sotheby’s auction in November 1990, over 50% of the art went unsold.
The millennial stock boom brought a similar pattern. Sotheby’s stock gained over a third between May 1996 and January 2002. Five months later, it had retreated to its 1996 level. But the art bubble continued to inflate. On July 11 of that year, Canadian press baron Kenneth Thomson paid $88million for Peter Paul Rubens’s ‘Massacre of the Innocents,’ the most ever paid for an old master painting at auction. A month later, total US art sales plummeted 13% from the year-earlier period. So, why is Sotheby’s stock such an effective leading indicator?
Perhaps stock investors lose confidence in market bubbles before vanity-blinded art aficionados. In any case, if it continues to accurately signal the art market’s top, Sotheby’s stunning performance, and recent wobble, should give collectors reason to lay aside their bidding paddles.