Analysis of Factors Influencing Capital Market Expectations

As an investment analyst at a wealth management firm, you are responsible for formulating capital market expectations that will guide portfolio construction for various client scenarios. Recently, there has been increased volatility in global equity markets influenced by geopolitical tensions and changing monetary policies.

Discuss the key factors that influence capital market expectations and how these factors should be incorporated into an analytical framework for setting future return expectations for equities and fixed income securities. Be sure to include both macroeconomic indicators and relative valuation techniques in your response.