CFA Level I · CFA Level I Exam · Industry and Competitive Analysis
An analyst expects the economy to move from late expansion into recession. Relative to the market, which positioning is most likely consistent with that view?
Overweighting defensive sectors such as consumer staples is most consistent with an expected recession. Their earnings are steadier than cyclical sectors, which are likely to suffer larger declines in sales and profit when the economy contracts.
- AOverweight cyclical sectors such as consumer discretionary
- BUnderweight defensive sectors such as utilities and health care
- COverweight defensive sectors such as consumer staplesCorrect
Explanation
In a coming recession, cyclical earnings are expected to fall sharply while defensive earnings hold up, so tilting toward defensive sectors is consistent. The other two choices do the reverse.
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