In anticipation of an economic recession, Manager A has shifted equity holdings out of the financial sector and into the health care sector. Manager B has shifted out of the technology sector and into mostly utilities. Which of the following statements is most accurate regarding the performance of each manager? A. Both Managers A and B would be expected to outperform the broad market. B. Manager A would be expected to outperform the broad market; Manager B would be expected to underperform the broad market. C. Manager B would be expected to outperform the broad market; Manager A would be expected to underperform the broad market. the answer is B, and the explanation is that “Growth stocks are more likely to outperform during and coming out of a recession so a premium would be placed on growth stocks.” However, it doesn’t make too much sense considering Walmart’s strong performance during recession. People would invest in defensive stocks (such as utility) in anticipation of an economic recession, I assume? Please help.
The rationale is that there are going to be few growth opportunities during a recession, therefore a growth stock might reasonable be expected to trade at a relative premium.
the question starts by saying “in anticipation of recession”. that means that recession hasn’t happened yet. therefore, growth stocks will outperform the defensive stocks.