Strategic Asset Allocation in a High Inflation Environment

As the Chief Investment Officer of a multi-billion dollar endowment fund, you are required to provide a thorough macroeconomic analysis to guide your investment decisions for the next fiscal year. Recent data reveal that inflation is at a three-decade high, while unemployment rates are approaching historic lows. Simultaneously, central banks across the globe are shifting towards aggressive monetary tightening as they grapple with soaring commodity prices and supply chain disruptions related to geopolitical tensions. Your task is to analyze the broader implications of these macroeconomic dynamics on asset classes, particularly equities and fixed income, and propose a strategic asset allocation that balances risk with expected returns.

In your analysis, consider the following: how might continued inflation impact sector performance within equities? How should duration risk in fixed income be assessed given the trajectory of interest rate hikes? Discuss any potential shifts in investment styles (e.g., growth vs. value) that may arise from these macroeconomic conditions, and how you might communicate your strategic recommendations to the endowment's investment committee.