“Some of Morgan’s work involves making investment recommendations based on his economic forecasts. Pinnacle’s global economic model has signaled that Italy’s economy, which is currently in a recession, will show signs of improvement in the coming months. He is considering the following recommendations for investors in the Italian markets: Implement a trade that will steepen the yield curve now and prepare to rotate from small-cap stocks into large-cap stocks and from value stocks into growth stocks over the next several months.”
Having a hard time understanding the concept. Could anyone provide an example please?
I had the same beef. What a bad question. “Implement a trade that will steepen the yield curve now” doesn’t make any sense because the Yield curve is set by the market, not by whatever trade you can make. You can’t steepen the yield curve. All you can do is execute a trade strategy that exploits the expectation of one. My guess is that a non-native English speaker wrote this question because it’s gobbledygook. Furthermore, the answer key doesn’t explain why “growth versus value stocks” is wrong-- it just repeats that betting on the yield curve steepening pays off. In actual reality, going into growth versus value stocks just before coming out of a recession will pay off in the same way going into small cap stocks just before coming out of a recession will pay off.
Can you post the specific question the case is asking?