Understanding Capital Market Expectations

A financial analyst at XYZ Investment Advisors has been tasked with providing capital market expectations to guide the firm’s portfolio management strategies. Capital market expectations involve predictions about the returns and risks associated with various asset classes over time.

In this context, discuss the impor\tance of forming accurate capital market expectations and the potential impact on investment decisions. Consider factors that can influence these expectations, such as economic conditions, interest rates, inflation, and market trends.