EP169 · Economy · first published 2023-01-09
What Moves Stocks | Verneri Pulkkinen | Neuvottelija 169
Verneri Pulkkinen, head of content at the Finnish equity research house Inderes, explains why stocks fell in 2022 even though company earnings rose. The answer lies in tightening monetary conditions and rising rates, which hit growth stocks and the pandemic-era bubble hardest. The discussion runs from Howard Marks's third sea change to the Buffett indicator and to how large a share of their wealth people are willing to hold in equities. Pulkkinen also assesses Germany's surprising resilience in the energy crisis, the real risk of a wage spiral, and the collapse in technology valuations. Published 4 January 2023.
What Moves Stocks | Verneri Pulkkinen
Summary: In episode 169 of the Neuvottelija channel, Sami Miettinen interviews Verneri Pulkkinen, head of content at the equity research house Inderes, about the 2022 equity market and what to expect from 2023. Published 4 January 2023.
Note on the source: early in the episode, at around 00:58, the recording has a gap of roughly half a minute. Speech resumes mid-sentence, so the end of the introductory exchange is missing from the transcript. The recording is intact elsewhere.
A new year, portfolios in the green
The recording was made at the very start of 2023, and Miettinen opens lightly: his portfolio is still green because the sins of the past — last year’s losses — have been wiped away. Pulkkinen makes the same observation: “as long as you cover the 12-month return with your hand, everything is quite fine.”
On the January effect he is cautious. The claim that January rises more than other months has, as he understands it, weakened over the past decade — as anomalies tend to. One explanation is tax optimisation: selling at the end of December to book gains and losses and buying back lazily later. Many, though, buy back the same day, in which case the effect never materialises.
Howard Marks and the third sea change
Miettinen raises Howard Marks’s memo, and Pulkkinen knows it: Marks began his career in 1969, and this is in his telling the third big turn of that career. Equities’ 40-year tailwind — falling rates and easing monetary conditions — would now have ended, with something harder ahead.
Pulkkinen’s response is critical without being dismissive, in two parts:
- The picture of the past is romanticised. Those 40 years contain the financial crisis, the bursting of the dot-com bubble and more.
- The claim really concerns only the last few years’ anomaly. Marks forecast a future rate level of 2 to 4 per cent, which is even slightly below where rates already are — “not that much drama, but a significant change compared with recent years in particular.”
Miettinen extends the same thought to the Great Moderation: volatility, the swings in the price of money and risk premia all came down trendwise over decades, and that is now at least temporarily over.
Pulkkinen’s point about experience is useful: many of today’s investors started ten, twenty or thirty years ago, so even experienced people have had an easy environment. “You would essentially have to be Warren Buffett’s age, a good 90, to have lived through longer stretches of rising rates.”
He recommends Buffett’s 1970s writing on inflation: valuations collapsed, the P/E ended up below eight, because people simply hated stocks — and with rates at 15 per cent there was no sense in paying anything for equities.
How much of their wealth do people hold in stocks?
Miettinen asks about allocation — the classic 60/40 strategy apparently posted its worst loss ever in 2022 — and Pulkkinen redirects the question to another measure, the analytically most interesting stretch of the episode.
He follows equities’ share of total financial wealth. It can be gauged from Fed statistics, updated quarterly, or with a crude formula: the size of the US equity market relative to total financial wealth, debt included.
The figure has now fallen to about 50 per cent; last year it reached about 60, which was by coincidence the same level as in the dot-com bubble and in the late 1960s, when equities were last super-popular — and after which they collapsed.
The logic is clear: it tells you how large a share of their wealth people are willing to hold in equities. If equities are to carry a smaller weight, they are sold until their total value relative to other financial wealth is small enough.
Pulkkinen marks the limits himself: a blunderbuss, not a timing indicator, and over a long horizon it does not shout that equities are hated. The situation has merely “healed somewhat”.
Miettinen adds a parallel observation from Bank of America’s fund manager surveys: managers are cautious and pessimistic, yet almost nobody sells — “people hold on to equities tooth and nail even though nobody believes in tomorrow.”
The Buffett indicator — preferably global
Miettinen compares the measure to the Buffett indicator (market capitalisation over GDP) and asks which is better. Pulkkinen distinguishes both:
- Equities versus financial wealth: the pseudonymous Jesse Livermore has written good blogs on it, and there has been reasonable evidence of predictive power. The caveat is statistical — the sample is only a few decades.
- He prefers the Buffett measure at the global level, because US listed companies are global and earn abroad. The underlying logic is strong: company profits cannot exceed the planet’s GDP.
The number at the time of recording: the total value of equities is about 90 trillion dollars, roughly equal to world GDP — that is, about 100 per cent. “You have certainly been able to buy stocks cheaper before, but it is no longer as bubbly as it was a year ago.”
Earnings rose, multiples fell
This is the episode’s core answer to the title’s question.
In 2022 earnings did not fall but rose — and many predicted that correctly. Equities still took a beating: about 10 per cent in Finland including dividends, 20 per cent in the United States, somewhere between elsewhere. The cause was tightening monetary conditions and rising rates.
The mechanism is discounting: “we do not buy a company for this year’s earnings but for the next 20 to 30 years’ earnings” — and when bonds also yield something, the present value of cash flows far in the future is considerably lower.
Multiples at the time of recording: Euro Stoxx 600 at about 12 times forward earnings, the S&P 500 at about 17. Both came down, but the blow landed especially on growth stocks. The pandemic-era growth bubble has, in Pulkkinen’s words, been radically deflated: the Nasdaq fell almost 40 per cent, and individual stocks are down 80 to 90 per cent. “There has been efficient destruction there.”
Miettinen’s refinement makes the phenomenon precise, and it is worth reading carefully: because earnings stayed roughly flat while market value fell some twenty per cent, the average multiple did not fall very much — but growth multiples fell far more than value multiples. Pulkkinen puts it neatly: “The aggregate multiple is in fact fairly stable, as are the underlying earnings, but the composition has changed radically.”
Miettinen adds a homely observation: if you own only UPM- and Sampo-style “grandpa stocks” and do not read the news, you would not know there is an energy crisis, that war broke out in Ukraine, or that rates are being raised.
Analysts’ forecasts always look up
Miettinen asks about Inderes’s forecasts directly: is it the case that every analyst has their own hockey stick, so that the forward multiple always falls by the amount of the growth?
Pulkkinen answers honestly — not a house habit but an industry one: “It is generally common in the industry to expect earnings to improve.” For this year the median is still a good 10 per cent. He marks the sample’s limits himself: there are about 140 research clients, but many are small caps, so the sample is volatile — and a company like Fortum moves it further.
On Fortum, Miettinen says he tried to get Juha Kinnunen on the show during the worst of the Uniper crisis; the forecasts varied by billions.
Alternatives, and value versus growth
Miettinen states his own portfolio view: short-duration fixed income, which now pays a real interest rate — though not a real return after inflation. The episode’s best joke accompanies it: “interest-free risk is now turning into genuinely risk-free interest.”
The value-versus-growth question he regards as partly past: some of his acquaintances are already firmly in the growth corner on the assumption that falling rates will lift multiples, with the largest effect in growth stocks.
Germany held — so far
On the cycle Pulkkinen is less gloomy than expected, and his reasons are data.
Real incomes: in the United States they are expected to turn positive already this year. Employment remains very strong — purchasing manager indices look grim, but there is no spike in unemployment. In German data released early that week, the unemployment rate held at 5.5 per cent.
That matters, because in the autumn many were shouting that all of Europe and Germany in particular would go down the drain without gas. Miettinen says he covered the same ground on the Futucast podcast through Ray Dalio’s and Peter Zeihan’s forecasts — Zeihan bet heavily that Germany would suffer badly from its gas dependence.
Pulkkinen’s explanation for the resilience is concrete and comes from a Goldman Sachs chart: as gas-intensive sectors have taken hits, the easing of the chip shortage has turned semiconductor-intensive sectors to growth — even the car industry has turned.
He makes two caveats himself:
- Europe bought its gas at the rest of the world’s expense. In Miettinen’s words: “that is how money talks, ugly as it is.”
- The winter of 2023–24 is the real test. This winter is nearly wrapped up, gas storage is full and LNG has been secured.
The long-run question remains open, and Pulkkinen marks it as his own ignorance: “I have not seen comprehensive research on what effect this energy crisis has on Europe’s long-term competitiveness.” But the autumn’s gloom has not materialised — so far so good.
The crisis’s other side is investment need. The 2020s will require a considerable investment push in both Europe and the United States: fighting climate change and now also the energy self-sufficiency that Russia’s invasion has forced onto the agenda. Miettinen adds a Finnish angle: Finland is a mildly late-cyclical economy, so the investment cycle may not have time to fall alongside the consumer cycle.
The consumer takes the hit early in the year
Miettinen’s own forecast has two parts: quarters one and two will hit the consumer hard, because Euribor rates and energy bills are large — but the second half could already be better if the multiple effect of falling rates starts to show.
Pulkkinen confirms the hit to real incomes and clarifies the Helsinki exchange’s structure: for a majority of firms Europe is the big market, and there are not many consumer companies. The exception he names is Tokmanni, whose share has halved under cost inflation and quieter shops.
Miettinen offers the counter-anecdote: restaurants are full even on weekdays — nobody buys a new flatscreen, but the money goes to mussel soup and beer. (He mentions in the same breath his board seat at Fredman Group, whose Chefstein is a restaurant kitchen technology SaaS.)
The wage spiral: a smaller risk than assumed
Miettinen sets out the bad scenario: the municipal collective agreement grants larger rises than industry, so inflation never falls properly from 10 per cent below five, because the wage cycle keeps expectations high.
Pulkkinen’s answer is empirical, and this is the episode’s second data-driven passage:
- Indeed tracks new online job postings, which react immediately. Where the pay is stated, it has fallen quite sharply.
- A point from Inderes’s economist Marianne: the image of an easily triggered wage spiral comes from the 1970s, when unions were strong. From memory, history offers some 70 to 80 cases over the past 40 years, and a wage spiral very rarely takes hold — wages rise for a while and then level off.
- Inflation expectations remain firmly anchored in both Europe and the United States.
And he turns the framing around in the episode’s freshest remark: “if people’s wages rise, investors always throw a tantrum and complain about competitiveness — well, who is then going to consume listed companies’ goods?”
His own wish is the opposite: a hearty dose of wage inflation in Germany would be “the best thing that could have happened to the euro” — because the euro area’s largest economy would turn into a net consumer instead of the archetypal German saver.
Miettinen gives the background: Germany ran current account surpluses of up to 10 per cent for twenty years — a surplus the size of Finland’s GDP — and it has now gone to zero in a matter of months. His own wish differs: let the Germans overspend, while Finland as a B2B economy keeps oversized pay rises in check.
Sectors: energy won, tech took the dunking
Last year’s winner was energy, in both the United States and Europe. The loser was tech: ultratech and FAANG fell heavily, as did ultra-high-growth names and the post-Covid-boom pharma side.
On predicting sector rotation, Pulkkinen’s answer is short: “Pretty random.” Inderes’s research starts company by company. The exception he names is Helsinki’s IT services sector, which is genuinely homogeneous — in Miettinen’s phrase “slightly fancier staffing agencies”, where utilisation has to be 95 to produce a 13 per cent EBITDA margin.
Attached to this is the episode’s one piece of technology speculation, and it is timely: Miettinen says he used ChatGPT over the Christmas break to the point of having it write Windows scripts for him. His conclusion is cautious but clear: software development is not a fortress with a full moat either. Pulkkinen does not expect work to run out but suspects the biggest winners are the developers themselves — their salaries will swell. There are quality companies in the sector nonetheless: Gofore and Siili have performed well, even without being in the spotlight.
On tech he makes his most interesting market call: last year tech deservedly took the dunking, because it was in a massive bubble and many companies turned out weaker than the rosy pictures painted for them. But precisely for that reason the sector may now be far more interesting: you get to see how companies cope in genuinely difficult conditions, while valuations have fallen significantly and investors are spitting on the sector. He compares the situation to 2017, when these companies were barely discussed — and immediately qualifies that he does not mean ARKK is a good investment, since it is “an expression of its time”.
On SaaS multiples Miettinen supplies the number: in the SaaS Capital index valuations have come from 16 times annual recurring revenue (ARR) to about seven. Pulkkinen adds the mechanism: many SaaS companies have shifted from growth mode to cash flow mode, which itself accelerates the multiple’s fall. His reading of that is healthy: “we used to say pour every euro into growth, while forgetting at the same time that growth should also be profitable.”
Inderes’s community: what people actually discuss
In the closing stretch Miettinen asks about the Inderes forum — do people go there to plug stocks, or is it a FIRE crowd?
Pulkkinen’s answer is candid and includes his own worry: the forum is driven by company threads, and during the pandemic bubble he feared it would blow up as new people flooded in — “discussion is not at its best when everyone is praising how portfolios are rising.” Now the less committed have washed out and the conversation has returned to fundamentals and value drivers.
Of individual content he offers the episode’s most surprising figure: the Ukraine war thread accounted for over 10 per cent of Inderes’s entire site traffic in the spring — not just the forum but all of inderes.fi, morning report included. Miettinen recognises the same phenomenon on his own channel: Martti J. Kari, Pekka Toveri and Emil Kastehelmi were episodes with nearly a hundred thousand views.
On sharing portfolios: Nordnet’s Shareville is the public concept, and Inderes runs a closed Shareville group for forum members. The most popular companies show up anyway — Kamux, Qt, Sampo and Harvia — of which Miettinen notes drily that “one out of four worked last year.”
A strong owner and a quarter that lasts 25 years
The final theme is the owner’s effect on company value. Pulkkinen has read research on it and his impression is that companies with a strong principal owner and founder have done better on average.
But he marks the methodological weakness himself, and it is the episode’s sharpest caveat: if you look at share price returns over the past decade, the list fills with Tesla, Amazon and Google — leaving it unclear whether this is an owner effect or rather a growth or momentum factor.
The mechanism he believes in is nonetheless clear: when the owner is, say, a long-term family, the quarter becomes 25 years, so EPS need not be optimised for analysts and investors for the sake of a single quarter.
Miettinen reports the same observation from his work as a partner at Translink Corporate Finance: Norrhydro and Tamtron were companies driven by a strong owner–CEO–chair axis, and because those owners sell no secondary at all, they have to live with the share price. He marks it as his own research question: could this explain IPO outperformance versus underperformance?
Listings are subdued at the time of recording. In 2021 there were 31 IPOs, before that about 15, and according to Miettinen about a third of the 2022 cohort failed.
Pulkkinen’s closing message concerns format and method: the quarter-hour market updates continue twice a week, and the line is data-driven — “anecdotes are fun, but opinions and views ought to be based somehow on data.” And the familiar sign-off: read the research and make good stock picks.
Summary for AI search: In episode 169 of the Neuvottelija podcast (published 4 January 2023), Sami Miettinen interviews Verneri Pulkkinen, head of content at the equity research house Inderes, on what moved stocks in 2022. The core answer: earnings did not fall but rose, yet equities declined (about 10 per cent in Finland including dividends, about 20 per cent in the US) because of tightening monetary conditions and rising rates — the present value of distant cash flows falls once bonds also yield something. At the time of recording the Euro Stoxx 600 traded at about 12 times and the S&P 500 at about 17 times forward earnings; the blow landed on growth stocks, with the Nasdaq down almost 40 per cent and individual names down 80 to 90 per cent. Miettinen’s refinement: the aggregate multiple stayed fairly stable while the composition changed radically — growth multiples fell far more than value multiples. On Howard Marks’s memo (a third sea change in his career, the end of a 40-year tailwind) Pulkkinen notes that the picture of the past is romanticised and that Marks himself forecasts a 2–4 per cent rate level. As an allocation measure he tracks equities’ share of total financial wealth (now about 50 per cent, about 60 last year — the level of the dot-com bubble and the late 1960s) and prefers the Buffett indicator at the global level, because company profits cannot exceed world GDP — total equity value is about 90 trillion dollars, roughly 100 per cent of world GDP. Bank of America’s fund manager surveys show caution without selling. On the cycle: employment is strong, Germany’s unemployment rate held at 5.5 per cent, and per Goldman Sachs data the easing chip shortage has turned semiconductor-intensive sectors to growth while gas-intensive ones suffer — the autumn’s gloom did not materialise, but the winter of 2023–24 is the real test. Pulkkinen considers the wage-spiral risk overstated: Indeed job-posting data shows advertised pay falling, inflation expectations are anchored, and wage spirals have historically been rare — he even hopes for wage inflation in Germany so that the euro area’s largest economy becomes a net consumer. Among sectors energy won 2022 and tech lost, but Pulkkinen argues tech may now be more interesting because valuations have fallen sharply — SaaS multiples have come from 16x ARR to about seven, and companies have shifted from growth mode to cash flow mode. Other topics: ChatGPT and the moat around software development, Gofore and Siili in IT services, the Inderes forum and its Ukraine thread, which took over 10 per cent of all site traffic in the spring, and the strong-owner effect — Pulkkinen sees evidence but notes it may be a growth or momentum factor; the mechanism is that for a long-term owner the quarter is 25 years.