Capital Market Expectations Amid Economic Shifts

You are a portfolio manager at a leading investment firm responsible for developing the firm’s capital market expectations (CMEs). The firm invests in a diversified portfolio that includes both domestic and international equities, fixed income securities, and alternative investments.

In light of recent changes in global economic conditions, including rising inflation rates, shifting monetary policies, and fluctuating geopolitical risks, outline your CMEs for the next five years.

Your response should assess the impact of the economic environment on asset classes, including the expected returns and volatility for both equities and fixed income assets. Additionally, consider the implications of these expectations on portfolio construction and risk management strategies. Be sure to justify your forecasts with relevant data and theoretical frameworks, including but not limited to the Capital Asset Pricing Model (CAPM) and macroeconomic indicators.