Berenberg still in 'sell the rally mode', recommends stagflation hedge strategy

That meant gaining exposure to a mix of 'defensive growth', inflation protection and secure yield.

They also suggested multiple 'sector barbells' which they said offered yield premium versus the market, including in global insurance, banks, energy and healthcare.

"We think these high-yielding sector combinations are attractive against an extending stagflationary impulse," they said in a research note sent to clients.

In the same report they noted that equities had not become cheaper relative to so-called risk-free rates.

"In our view, equity markets are pricing in a macro slowdown rather than a recession, with the latter now our economists’ base case for 2023."

Hence, their recommendation to clients was unchanged: 'sell the rally' as opposed to 'buy the dip'.

However, they emphasised the 'valuation overlay' to their recommendation, such as implementing a stagflation hedge strategy or what they said was a cheap cyclical/defensive barbell.

As an aside, they also noted that they saw "valuation support" in the UK over Europe and in Germany over Switzerland thanks to higher dividend yields.

"Within European and UK equity markets, expensive shares still look vulnerable on a valuation basis. We would continue to have a valuation skew in portfolios."