Market Insights
Global Market Pulse (USD)
October 2025
Leveraging expertise from the MFS Market Insights team to provide timely perspectives on economic and market dynamics that are top of mind for clients.
Market Insights Team
KEY TAKEAWAYS
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Economy & Markets
Economy & Markets
Slower job growth worries markets, but tax data shows strength MFS PERSPECTIVE
- Weak summer hiring data and revisions put non-farm payrolls below their breakeven rate.
- The slowdown partly reflects lower immigration; falling labor supply is feeding into lower levels of job creation.
- However, growth in income tax withholding is 2% above the long-term average, showing fewer signs of labor force weakness.
Narrowing US/European interest rate differential MFS PERSPECTIVE
- With the European Central Bank easing cycle likely complete and the Fed cycle just restarting, the dollar’s interest rate differential over those in the eurozone has narrowed.
- If EUR-based investors fear a weaker dollar, the tighter spread makes it less expensive to hedge their USD-denominated exposures.
European earnings growth is expected to close the gap with the US MFS PERSPECTIVE
- In local currency terms, consensus earnings estimates for Europe are expected to improve appreciably into 2026.
- A narrowing of the earnings growth rate differential suggests the record US-Europe valuation discount may close.
- However, currency movements will influence both earnings and overall returns.
Cash reserves suggest latitude for shareholder-focused moves MFS PERSPECTIVE
- 2025 share buybacks in Japan have already surpassed 2024’s record level.
- Cash balances for many Japanese companies remain high despite declining from post-Covid highs.
- Current cash levels suggest Japanese companies can continue to undertake both share buybacks and long-term growth initiatives.
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US Equity
US
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
- The Fed has restarted its rate cutting cycle, providing additional support for US equities.
- Receding uncertainty has resulted in a risk-on rally with high beta names outperforming.
- Earnings revisions have inflected upwards amid waning uncertainty and the passage of pro-growth policies.
- Despite the recent rally in small caps, we continue to favor large caps, as well as value over growth.
MFS CONSIDERATIONS LARGE CAP
- AI capex remains a significant growth driver for megacap technology.
- Valuations remain high and leadership narrow, amplifying downside risks if elevated earnings forecasts fail to live up to expectations.
SMALL/MID CAP
- With rate cuts restarting, SMID stocks have rallied due to their higher sensitivity to borrowing costs.
- The US economy remains resilient and should provide support to SMID companies, as their earnings tend to be realized domestically.
- Valuations remain discounted relative to large caps.
GROWTH
- The relative earnings growth between megacap technology and the rest of the Russell 1000® Growth is expected to narrow further in 2026.
- Valuations remain stretched and will likely require earnings to come through to avoid corrections in the event of earnings misses.
- The AI trade remains the key driver of growth stock performance.
VALUE
- Consumer cyclicals have outperformed amid resilient demand from affluent US consumers.
- Value stocks continue to trade at a deep discount relative to growth.
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Global Developed Equity - Ex US
EUROPE EX UK
- Consensus 2026 earnings growth of 11% may be optimistic, but a notable improvement from 2025 is expected.
- The improving earnings outlook implies the P-E ratio could fall further from undemanding levels.
MFS CONSIDERATIONS
- Improving economic growth, if sustained, may drive an earnings recovery.
- The impact of Germany’s fiscal push is expected to sustain well into 2026.
- However, a strong euro may prove a headwind for some companies.
UK
- Growing budget pressures may start to dent the resilience of the FTSE-100 as sentiment deteriorates amid rising policy risks.
- Inflation remains sticky, and growth could slow if real wages fall and unemployment rises.
MFS CONSIDERATIONS
- However, the FTSE’s UK exposure is low, and valuations remain undemanding.
- UK stocks may also benefit from international demand for value exposure in the face of higher growth and inflation.
JAPAN
- Equities continue to perform, buoyed by ongoing reform, which is driving improving profitability and sharpening capital allocation.
- A change in government has increased the potential for looser fiscal policy.
MFS CONSIDERATIONS
- Rising inflation and wages may have positive consequences for local consumption.
- Amid a more inflationary backdrop, local investors need to protect against eroding purchasing power, potentially spurring demand for equities over cash.
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Emerging Markets
EM EQUITY
- Many emerging market economies remain healthy, with solid growth prospects and in good fiscal shape.
- Valuations remain reasonable.
- Asia continues to benefit from ongoing AI capex and tech spend.
MFS CONSIDERATIONS
- Ongoing USD weakness should be supportive for EM equities.
- However, China continues to face challenges with weak consumption and property woes.
- With wide dispersion between and within countries, investors should remain selective.
EM DEBT - HARD CURRENCY
- Despite tight spreads, the valuation backdrop remains favorable on a total-yield basis.
- Watch for the impact of global risks, ranging from Trump 2.0, to geopolitics, to China’s structural headwinds.
MFS CONSIDERATIONS
- Contrary to initial concerns, EM debt has shown remarkable resilience since the US election.
- Fund flows have been positive, supporting tight valuations.
- However, given significant risks, country selection will be key.
EM DEBT - LOCAL CURRENCY
- The USD has been weak, particularly post Liberation Day, supporting EM currencies.
- Fundamentals have been supportive of local duration, with decelerating inflation and expected central bank easing.
MFS CONSIDERATIONS
- A weaker dollar environment is likely to act as a major tailwind.
- Elevated real rates provide opportunities to add duration.
- Given the more tactical characteristics of the asset class, watch the risk appetite backdrop.
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Global Fixed Income
USD DURATION
- Slower economic growth and concerns around a weakening labor market have spurred the Fed to restart its rate-cutting cycle after a nine-month pause.
- However, it seems poised to look through hotter, tariff-induced price pressures from core goods.
MFS CONSIDERATIONS - Increased to neutral as the macro backdrop has shifted towards being duration supportive.
- Amid increased focus on labor data, NFP and jobless claims will be key data points to monitor.
US IG CORP
- Fundamentals remain respectable due to recent margin and free cash flow improvements.
- Spreads remain near historical tights.
- Robust fund flows help support rich valuation.
MFS CONSIDERATIONS - With the macro backdrop shifted towards rate cuts, we have increased our rating.
- Relative to high yield, IG credit’s higher duration will be beneficial during a cutting cycle.
- With spreads tight, we have an up-in quality bias.
EURO IG CORP
- Sound fundamentals and robust technicals are supportive of tight valuations.
- European fiscal expansion should benefit sectors such as defense and utilities.
- Spread valuations have compressed to near record tights.
MFS CONSIDERATIONS - While yield valuations remain compelling, spreads have tightened recently and are close to their US counterparts.
- While the macro-outlook is less supportive, relative value can be found versus the US in sectors with better risk/reward profiles.
EURO DURATION*
- The ECB has completed its cutting cycle, leaving current valuations uncompelling.
- Enthusiasm for fiscal spending packages in some countries is being offset by budget battles in others.
- Defense and infrastructure-related spending should be a tailwind to growth.
MFS CONSIDERATIONS - Reduced our rating, mainly reflecting mixed macro data and relative valuation to the US.
- If growth slows meaningfully, we believe the ECB will resume cutting and support duration.
US HIGH YIELD
- Fundamentals are robust, helped by low levels of leverage and strong free cash flow generation.
- Other positive drivers include low default rate projections, strong fund flows and a supportive macro outlook.
MFS CONSIDERATIONS - While the risk/reward proposition remains reasonable, we are neutral while looking to move credit up in quality with spreads richly valued.
- Dispersion is low, so security selection is key.
EURO HIGH YIELD
- The macro backdrop and strong fundamentals, including favorable net leverage, are supportive.
- Breakeven yields remain attractive.
- Increasing European credit growth is a tailwind for spread valuations.
MFS CONSIDERATIONS - Strong technicals and fundamentals are offset by an uncertain growth outlook and tight spreads, leaving us neutral.
- Security selection remains key given the dispersion of fundamental stories at the security level.
Economy & Markets
| Slower job growth worries markets, but tax data shows strength |
MFS PERSPECTIVE
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| Narrowing US/European interest rate differential |
MFS PERSPECTIVE
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| European earnings growth is expected to close the gap with the US |
MFS PERSPECTIVE
|
| Cash reserves suggest latitude for shareholder-focused moves |
MFS PERSPECTIVE
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| US |
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
|
| MFS CONSIDERATIONS |
| LARGE CAP |
- AI capex remains a significant growth driver for megacap technology.
- Valuations remain high and leadership narrow, amplifying downside risks if elevated earnings forecasts fail to live up to expectations.
| SMALL/MID CAP |
- With rate cuts restarting, SMID stocks have rallied due to their higher sensitivity to borrowing costs.
- The US economy remains resilient and should provide support to SMID companies, as their earnings tend to be realized domestically.
- Valuations remain discounted relative to large caps.
| GROWTH |
- The relative earnings growth between megacap technology and the rest of the Russell 1000® Growth is expected to narrow further in 2026.
- Valuations remain stretched and will likely require earnings to come through to avoid corrections in the event of earnings misses.
- The AI trade remains the key driver of growth stock performance.
| VALUE |
- Consumer cyclicals have outperformed amid resilient demand from affluent US consumers.
- Value stocks continue to trade at a deep discount relative to growth.
| EUROPE EX UK |
- Consensus 2026 earnings growth of 11% may be optimistic, but a notable improvement from 2025 is expected.
- The improving earnings outlook implies the P-E ratio could fall further from undemanding levels.
| MFS CONSIDERATIONS |
- Improving economic growth, if sustained, may drive an earnings recovery.
- The impact of Germany’s fiscal push is expected to sustain well into 2026.
- However, a strong euro may prove a headwind for some companies.
| UK |
- Growing budget pressures may start to dent the resilience of the FTSE-100 as sentiment deteriorates amid rising policy risks.
- Inflation remains sticky, and growth could slow if real wages fall and unemployment rises.
| MFS CONSIDERATIONS |
- However, the FTSE’s UK exposure is low, and valuations remain undemanding.
- UK stocks may also benefit from international demand for value exposure in the face of higher growth and inflation.
| JAPAN |
- Equities continue to perform, buoyed by ongoing reform, which is driving improving profitability and sharpening capital allocation.
- A change in government has increased the potential for looser fiscal policy.
| MFS CONSIDERATIONS |
- Rising inflation and wages may have positive consequences for local consumption.
- Amid a more inflationary backdrop, local investors need to protect against eroding purchasing power, potentially spurring demand for equities over cash.
| EM EQUITY |
- Many emerging market economies remain healthy, with solid growth prospects and in good fiscal shape.
- Valuations remain reasonable.
- Asia continues to benefit from ongoing AI capex and tech spend.
| MFS CONSIDERATIONS |
- Ongoing USD weakness should be supportive for EM equities.
- However, China continues to face challenges with weak consumption and property woes.
- With wide dispersion between and within countries, investors should remain selective.
| EM DEBT - HARD CURRENCY |
- Despite tight spreads, the valuation backdrop remains favorable on a total-yield basis.
- Watch for the impact of global risks, ranging from Trump 2.0, to geopolitics, to China’s structural headwinds.
| MFS CONSIDERATIONS |
- Contrary to initial concerns, EM debt has shown remarkable resilience since the US election.
- Fund flows have been positive, supporting tight valuations.
- However, given significant risks, country selection will be key.
| EM DEBT - LOCAL CURRENCY |
- The USD has been weak, particularly post Liberation Day, supporting EM currencies.
- Fundamentals have been supportive of local duration, with decelerating inflation and expected central bank easing.
| MFS CONSIDERATIONS |
- A weaker dollar environment is likely to act as a major tailwind.
- Elevated real rates provide opportunities to add duration.
- Given the more tactical characteristics of the asset class, watch the risk appetite backdrop.
| USD DURATION |
- Slower economic growth and concerns around a weakening labor market have spurred the Fed to restart its rate-cutting cycle after a nine-month pause.
- However, it seems poised to look through hotter, tariff-induced price pressures from core goods.
| MFS CONSIDERATIONS |
- Increased to neutral as the macro backdrop has shifted towards being duration supportive.
- Amid increased focus on labor data, NFP and jobless claims will be key data points to monitor.
| US IG CORP |
- Fundamentals remain respectable due to recent margin and free cash flow improvements.
- Spreads remain near historical tights.
- Robust fund flows help support rich valuation.
| MFS CONSIDERATIONS |
- With the macro backdrop shifted towards rate cuts, we have increased our rating.
- Relative to high yield, IG credit’s higher duration will be beneficial during a cutting cycle.
- With spreads tight, we have an up-in quality bias.
| EURO IG CORP |
- Sound fundamentals and robust technicals are supportive of tight valuations.
- European fiscal expansion should benefit sectors such as defense and utilities.
- Spread valuations have compressed to near record tights.
| MFS CONSIDERATIONS |
- While yield valuations remain compelling, spreads have tightened recently and are close to their US counterparts.
- While the macro-outlook is less supportive, relative value can be found versus the US in sectors with better risk/reward profiles.
| EURO DURATION* |
- The ECB has completed its cutting cycle, leaving current valuations uncompelling.
- Enthusiasm for fiscal spending packages in some countries is being offset by budget battles in others.
- Defense and infrastructure-related spending should be a tailwind to growth.
| MFS CONSIDERATIONS |
- Reduced our rating, mainly reflecting mixed macro data and relative valuation to the US.
- If growth slows meaningfully, we believe the ECB will resume cutting and support duration.
| US HIGH YIELD |
- Fundamentals are robust, helped by low levels of leverage and strong free cash flow generation.
- Other positive drivers include low default rate projections, strong fund flows and a supportive macro outlook.
| MFS CONSIDERATIONS |
- While the risk/reward proposition remains reasonable, we are neutral while looking to move credit up in quality with spreads richly valued.
- Dispersion is low, so security selection is key.
| EURO HIGH YIELD |
- The macro backdrop and strong fundamentals, including favorable net leverage, are supportive.
- Breakeven yields remain attractive.
- Increasing European credit growth is a tailwind for spread valuations.
| MFS CONSIDERATIONS |
- Strong technicals and fundamentals are offset by an uncertain growth outlook and tight spreads, leaving us neutral.
- Security selection remains key given the dispersion of fundamental stories at the security level.
The views expressed herein are those of the MFS Strategy and Insights Group within the MFS distribution unit and may differ from those of MFS portfolio managers and research analysts. These views are subject to change at any time and should not be construed as MFS’ investment advice, as portfolio positioning, as securities recommendations, or as an indication of trading intent on behalf of MFS.
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