If nothing else, it was a year of surprises.
By all accounts, 2019 was not shaping up to be a good year for the markets. The final months of 2018 saw huge downturns as investors prepared for a potential looming recession, sparked by trade wars and Brexit. There were also signs that the great bull market was finally coming to an end. Many advisors began recommending increased allocations to conservative safe havens such as bonds and cash to protect investors from any market turbulence.
As it turned out, these fears were somewhat premature, at least for now.
So How Did We Do?
2019 ended up being a fantastic year for the markets. Buoyed by strong job numbers, solid consumer spending and better-than-expected corporate earnings, the S&P 500 Index surged nearly 30%, its best year since 2013. The Nasdaq climbed even higher, gaining 35% in 2019, the S&P/TSX gained almost 23%, while gold and crude oil also saw double digit returns.
But individual stocks saw varied results. Beyond Meat’s public share offering traded dramatically up, Uber, Lyft’s and WeWork’s IPOs both fell spectacularly flat over concerns of profitability and business prospects.
Tesla went from a 2019 low of $176.99 in June, to reach over $400 by year end, and trading over $525 into the new year. As of early January 2020, it is the most valuable car company in America, in terms of market value.
And while these stories dominated the financial headlines, the most talked about investment in the art world in 2019 was a conceptual piece that involved duct-taping a banana to a wall.
The piece was titled “Comedian” and was created by Maurizio Cattelan, one of the most popular and controversial artists in the contemporary art scene.
The piece consisted of a banana purchased for .30 cents at a local fruit market, a piece of duct tape, instructions for installation and most importantly, a certificate of authentication saying the work was an original Maurizio Cattelan. It sold for $120,000.
Cattelan hadn’t sold his work in a fair in over 15 years and it quickly became the “unicorn” of the art world. A second piece sold for $120,000, with a third piece priced at $150,000. Not surprisingly, the sale created mixed commentary on how we value things.
Like determining a stock’s price, there are some fundamentals to pricing art, including:
- Scale or size of the piece
- Intensity or detail
- The material it’s made of
- Number of copies
Not surprising these factors don’t necessarily reflect the total price. Supply and demand and “appetite” also play a large role, if it’s an artist that is trending. The same can also be said of stocks.
Stocks vs. Art as an Investment
In March 2019, Planet Money compared a $10,000 art index investment starting in 2010 vs the S&P 500 Index for the same time period. Their results uncovered that over that time period your original investment in the S&P 500 would be worth $28,000. The investment in the art index would be worth only $8,900. Advantage, stocks.
Another advantage for stocks is that they are not consumable. Cattelan’s “Comedian” was eaten during it’s showing by another artist in a surprise performance art piece he called “Hungry Artist”. He called the work “delicious”.
2020: The Year Ahead
To date, the stock markets have fared much better than the banana art and many are pointing to brighter prospects for the year ahead as well.
The North American markets finished the decade without a recession, and since the financial crisis is on the longest bull run in history. Like banana art, there are those who question current market valuations and believe they may be expensive. Not banana art expensive, but based on some financial indicators, some believe markets may be priced too high and susceptible to a correction. Many point to political uncertainty creating potential market volatility in 2020, including the conflicts in Iran and continued concerns over Brexit as triggers that could cause a downturn.
There are however, many strong indicators around the current market outlook and many economists are predicting a continued positive forecast,. Low unemployment, low interest rates and a trade war truce are also providing people with many reasons to be optimistic, even if we don’t repeat the performance of last year.
Inflation should stay low, however there are those who point to rising food prices as something to watch for in 2020. At the current expected rate of 2-4%, a banana could be worth more than the banana art piece by the year 2350. Not an appetizing return.