Impact of Economic Indicators on Capital Market Expectations

Easy Economic Analysis Capital Market Expectations

As a portfolio manager monitoring the economic landscape, you are focused on developing your capital market expectations. Recent data indicate a steady increase in consumer confidence and a moderate rise in interest rates. Analysts suggest that the Federal Reserve is likely to maintain its current monetary policy, thus preventing any sudden shifts in the economic environment. You need to determine the probable impact of these indicators on the outlook for equities versus fixed income over the next year.

Which of the following best summarizes the expected outcomes for the equity and fixed income markets based on these economic indicators?

Equities are expected to perform well due to rising consumer confidence, while fixed income returns are likely to decline with rising interest rates.

Fixed income investments are expected to outperform equities due to rising interest rates which typically bolster bond prices.

Both equities and fixed income are expected to perform poorly as the economy shows signs of recovery and interest rates remain stable.

Hint

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