Capital Market Expectations Amid Inflation and Interest Rate Hikes

Very Hard Economic Analysis Capital Market Expectations

In a recent global economic outlook report, analysts from an investment firm assessed several key indicators and their potential impact on capital market expectations over the next 12 months. They noted the following:

1. Inflation rates across major economies are expected to remain above central bank targets, driven by ongoing supply chain disruptions and energy price fluctuations.

2. The Federal Reserve is anticipated to implement a series of interest rate hikes, but the pace is expected to slow as inflation shows signs of stabilizing.

3. Emerging markets are facing increasing volatility due to geopolitical tensions and fluctuating commodity prices impacting their growth prospects.

Given this context, which of the following capital market expectations do analysts most likely project for the upcoming year regarding equity and fixed-income markets?

Equities are expected to perform strongly due to stimulus measures and recovery in consumer spending.

Fixed-income investments are expected to yield higher returns as interest rates rise.

Both equity and fixed-income markets will experience subdued returns due to heightened inflation and interest rate uncertainty.

Hint

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