Key Factors in Determining Future Equity Returns

As an investment analyst for a major asset management firm, you are responsible for formulating capital market expectations for the upcoming fiscal year. Due to recent monetary policy changes, including a series of interest rate hikes by the central bank, along with ongoing geopolitical tensions affecting trade flows, it is crucial to gauge the impact these factors will have on equity and fixed income returns.

In light of these developments, you analyze various economic indicators, including GDP growth rates, inflation projections, and changes in consumer spending trends. Based on your analysis, you intend to provide your firm with insights into expected returns across asset classes.

Which of the following best describes the most important factor in determining future expected equity returns in this scenario?