Portfolio Positioning in Mixed Economic Signals

Very Hard Economic Analysis Business Cycle Analysis

As the Chief Investment Officer of a large investment firm, you are analyzing the implications of the current stage of the business cycle on your firm's portfolio strategy. Recent economic data has shown mixed signals: a steady rise in real GDP growth, but also a noticeable uptick in inflation rates and tighter monetary policy from the central bank. Economists are divided on whether the economy is entering a new expansion phase or if it is at the peak of the current cycle. Given these conditions, how should your firm position its investment portfolio to mitigate risks and capitalize on potential opportunities?

Increase allocations to equities while reducing fixed-income exposure, anticipating continued economic growth.

Shift investments towards defensive sectors and high-quality bonds to prepare for a potential downturn.

Diversify the portfolio by increasing exposure to commodities and emerging markets, betting on inflation persistence.

Hint

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