Episode 169 · 2023-01-09 · 36:37 · Original in Finnish
What Moves Stocks | Verneri Pulkkinen | Negotiator 169
Originally published as “Mikä liikuttaa osakkeita | Verneri Pulkkinen | Neuvottelija 169”
Verneri Pulkkinen, head of content at the Finnish equity research house Inderes, works through why shares fell in 2022 even though company earnings rose. The answer is in monetary conditions rather than in the companies: tightening and rising rates hit growth stocks and the pandemic-era bubble hardest, and the discount rate did the work that earnings did not. The conversation runs from Howard Marks's third sea change to the Buffett indicator and on to how large a share of their wealth people are actually willing to hold in equities. Pulkkinen also weighs Germany's unexpected resilience through the energy crisis, the real risk of a wage spiral, and the collapse in technology valuations.
Core theses
- 2022 was a de-rating, not an earnings recession: prices fell while profits rose, so the cause sits in the discount rate.
- Rate rises are not neutral across the market — duration is what is being repriced, which is why growth took the damage.
- How much of their wealth households are willing to hold in equities is a behavioural ceiling that valuation models tend to ignore.
- Germany's resilience through the energy crisis was the year's clearest example of a consensus forecast being wrong in the optimistic direction.
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Summary
Verneri Pulkkinen, head of content at the Finnish equity research house Inderes, works through why shares fell in 2022 even though company earnings rose. The answer is in monetary conditions rather than in the companies: tightening and rising rates hit growth stocks and the pandemic-era bubble hardest, and the discount rate did the work that earnings did not. The conversation runs from Howard Marks’s third sea change to the Buffett indicator and on to how large a share of their wealth people are actually willing to hold in equities. Pulkkinen also weighs Germany’s unexpected resilience through the energy crisis, the real risk of a wage spiral, and the collapse in technology valuations.
Prices fell, profits rose
That single pairing is the episode’s organising fact. If earnings went up and the index went down, the explanation cannot be the companies — it has to be the rate at which their future earnings are discounted. Everything else in the conversation hangs off that.
Duration is what got repriced
Rising rates do not hit a market evenly. The further out a company’s cash flows sit, the more a higher discount rate takes off their present value, which is why growth names and the pandemic-era bubble bore the losses while shorter-duration businesses did not.
The behavioural ceiling
Pulkkinen’s more unusual point is about the denominator: there is a limit to how much of their wealth people will hold in equities regardless of what the models say it is worth, and that limit does more to set the market’s level than most valuation arguments admit.
Watch
The recording lives on the Neuvottelija channel: Mikä liikuttaa osakkeita | Verneri Pulkkinen | Neuvottelija 169. A Finnish edition of this episode is published at www.neuvottelija.fi.
In depth
The Neuvottelija AI editions carry a long-form write-up of this episode: English · suomeksi.
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People and topics
Guests: Verneri Pulkkinen
Topics: Investing & Markets