The global art market saw a 12% drop in sales last year, its steepest decline outside the pandemic in over a decade.

The appeal of art as an investment has weakened as interest rates remain high, making income-generating assets like bonds and stocks more attractive.

Investors now favor “productive” assets that generate cash, such as dividend-paying stocks and profitable companies, over speculative assets like art.

As a result, capital is shifting away from collectibles and into investments with real returns.

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Last year, the art market saw its sharpest non-pandemic-related drop in more than a decade.

According to the latest 2024 report from UBS and Art Basel, global art sales tumbled 12% year over year. That’s the biggest decline since the pandemic crash of 2020.

Auction houses reported fewer big-ticket items and slower sales across the board. And it’s not because the wealthy have less cash.

It’s because the appeal of owning art has changed for the worse.

In a near-zero interest rate world, you could justify holding art as a scarce, appreciating asset.

However, the investing landscape has changed.

Art just isn’t seen as a great investment anymore…

Ultra-low interest rates turned everything into a potential investment for more than a decade.

Art, collectibles, and even “meme stocks” found justification in scarcity and hype.

With Treasurys yielding next to nothing and savings accounts paying 0.01%, investors were forced to look elsewhere for returns.

But now, the tide has turned. The Federal Reserve is still holding the line on inflation. Interest rates are still high.

The U.S. 10-year Treasurys yield around 4%. Many high-yield savings accounts and CDs offer even more. The minimum return needed to justify a riskier investment—also called the “hurdle rate”—is rising.

That’s bad news for assets like art. It doesn’t produce cash, pay dividends, or compound the way that a business can.

Despite this, the market for fine art is still alive as some pieces will always command a premium.

But from an investment standpoint, it’s a dead end versus assets that throw off income and reinvest profits over time.

Meanwhile, “productive” capital is roaring back. By that, we mean investments that can generate cash.

Last year, investors bought more than $600 billion in bonds for the first time ever. Likewise, they bought $1.1 trillion in ETFs after never surpassing $900 billion before.

Bonds are a simple example. They pay you interest for lending money to a company. Stocks that pay dividends are similar.

But even stocks that don’t pay dividends are considered productive. Assuming you buy the stock of a profitable company, that company is generating cash.

It can use that cash to invest in its business, grow, and become more profitable in the future. That’s what drives the stock price to rise.

Compare that to something like art or a lump of gold, which only rises because there’s more demand.

After a brief pullback in 2023, earnings for U.S. companies finally grew again last year. Earnings grew 9%, and this year, they’re expected to grow another 8%.

Art’s declining popularity is part of a much bigger shift. Speculative assets aren’t vanishing. But they make less sense than they used to.

When investors can earn 4% or more with virtually no risk, they don’t need to bet on price appreciation alone.

This is especially true when stocks and bonds offer even higher returns with the guarantee of getting some cash back.

That’s why we’re seeing capital flood back into bonds, dividend-paying stocks, and profitable businesses.

These assets align with the healthiest part of a bull market, the part where the companies that earn the most money have the best-performing stocks.

And that’s where long-term investors should be looking.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research