In this month’s strategy piece Alastair George believes that incoming data continue 2022’s challenging themes of rising inflation and slowing growth. The sharp equity rally during the past six weeks may have been driven by overly bearish market positioning rather than any improvement in fundamentals. Despite suggestions of a peak in US inflation there remains in our view a long period ahead of above-target inflation and comparatively tight monetary policy in developed markets. Commodity and energy prices are well below the levels recorded earlier in the year while the lagged effect of tighter monetary policy is now apparent in slowing economic data. There may be merit in trimming overweight energy allocations in favour of defensive equities set to benefit from lower input costs, even if it is still too early in the cycle for a more aggressive shift in portfolio sector allocations. Europe’s adverse energy dynamics suggest caution is required in the region. Natural gas prices have risen tenfold since 2020 due to Russia’s war in Ukraine. Unless resolved rapidly, this sharp rise in prices will materially impact both industrial output and consumer budgets, creating the perfect conditions for a ‘winter of discontent’ in Europe, including the UK. A sharp reduction in global equity valuations this year is encouraging and underpins our neutral view on equities. It is too late to be overly bearish with much of the steam out of the COVID-19 induced market valuation bubble. Globally, forward price/book valuations are close to long-term averages, with discounted valuations in Europe reflecting war-related risks while US markets remain at a premium. We remain neutral on global equities. While acknowledging that equity valuations have eased considerably, medium-term inflation uncertainty remains high and we believe the focus should remain on building portfolios robust to a variety of economic outcomes rather than positioning for outsize returns.