Bidders are piling into Sotheby’s (BID) stock today like a post-Thanksgiving crowd into a department store as the stock is on pace for its best single-day performance in over five years.  Today’s driver is a better than expected earnings report where the company smashed consensus estimates on both the top and bottom line.  In its commentary, the company noted that its “results reflect growing confidence in the market as collectors responded enthusiastically to the great collections and works we secured for sale.”

Given that Sotheby’s caters mostly to people who have too much money lying around that they feel the need to spend it on paintings and pricey tchotchkes, its performance would seem to have little bearing on how regular consumers are doing.  In the past, however, the stock’s performance has been cited as a relatively good predictor of the business cycle. The chart below shows the performance of Sotheby’s stock since 1989 with recessions overlaid in gray.

As shown, there were three major peaks in Sotheby’s from 1989 to 2009 where the stock lost more than two-thirds of its value, and all three of them preceded recessions.  Sotheby’s share price once again did fall by over 60% to its low in early April of last year, and while a total recession didn’t follow here in the US, there was a soft spot.  Additionally, the European and Chinese economies (where many of Sotheby’s buyers come from) were also under a pressure.

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So what is Sotheby’s telling us about the economy now?  While the stock is still well off its highs from the last several years, today’s 14% rally implies that business for the company is improving, and that should be a positive signal for the global economy.  One caveat we would note, though, is that the strong earnings report wasn’t solely due to improved business conditions in Sotheby’s market.  As noted in the release, “The Company also benefited from a lower effective tax rate and a significantly lower number of shares outstanding due to share repurchases made throughout 2016.”  Leave it to financial engineering to ruin what was once a great off-beat economic indicator.

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