Market Pulse
Leveraging expertise from the MFS Market Insights team to provide timely perspectives on economic and market dynamics that are top of mind for clients.
Economy & Markets
| Today’s US economy is less energy intensive |
MFS PERSPECTIVE
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| US equities historically rallied following high uncertainty |
MFS PERSPECTIVE
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| European earnings growth looks to close gap with US |
MFS PERSPECTIVE
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| Credit spreads are tighter today than pre-conflict |
MFS PERSPECTIVE
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Equity
Assets Class Views
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Fundamentals → |
Earnings Revisions ↑ |
Macro →
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Emerging MarketsAI and digital spend continue to drive EM tech earnings, while demand for commodities, power and infrastructure supports exporters. Some countries face pressure from the Iran crisis, so it pays to be selective as opportunities broaden across sectors.
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Non-US DevelopedEurope’s energy/commodity sensitivity remains a near-term headwind, but earnings expectations and stock dispersion are tailwinds. Japan continues to benefit from AI/semis strength and improving corporate governance. We stay positive, though more favorable toward US and EM.
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US Equity
Assets Class Views
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Fundamentals ↑ |
Earnings Revisions → |
Macro →
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Small/Mid-CapSMID caps have rallied year-to-date, led by high beta, narrowing the valuation gap with large caps. The earnings outlook for SMIDs has seen meaningful improvement. We prefer mid-caps over small caps, given their valuation discount and improving EPS growth.
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GrowthDespite a recent pullback in valuations, expectations remain high, and growth stocks will have to deliver on earnings. Market perceptions of AI winners and losers have widened the performance gap across and within sectors, especially technology.
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Large CapMarket breadth returned in the first quarter with close to half of S&P 500 stocks outperforming the index. Earnings are robust, but valuation and concentration remain risks. We continue to favor large and mid-cap stocks over small-caps.
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ValueThe valuation gap between value and growth has narrowed but remains wide. 2026 earnings estimates have been revised upward year-to-date, supported by the macro backdrop and AI capex spend.
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Fixed Income
Assets Class Views
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Fundamentals ↑ |
Earnings Revisions → |
Macro ↓
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US Investment GradeCorporate fundamentals are robust, profit margins remain elevated, and free cash flow generation has been increasing. The recent earnings season has seen a 4 to 1 ratio of earnings beats to misses, despite geopolitical uncertainty. Spreads remain tight, but support US IG well versus purely rate-driven asset classes.
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US MunicipalsValuations have become more attractive, with tax exempt yields back above 3.6%. Fundamentals have benefitted from strong growth in state tax receipts, and robust fund flows are helping absorb a wave of heavy issuance.
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US Securitized (MBS)Mortgage yields have risen, while spreads remain historically tight. Technicals were strong, supported by $200B in GSE buying of MBS amid limited issuance. Going forward, technicals may soften while valuations are rich.
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US TreasuriesHigher rates driven by the Iran conflict makes valuations more compelling, supportive of duration and US Treasuries. Technicals remain reasonable as investor appetite for dollar assets seems to have rebounded.
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EM DebtDespite several EM countries being at the center of the Iran conflict, spreads are tighter than pre-conflict levels. Current spreads do not seem to compensate investors for the elevated uncertainty, leaving us cautious on the asset class.
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US High YieldGeopolitical uncertainty hurt sentiment, driving recent negative fund flows. After early widening, spreads are now tighter than pre-conflict levels. With valuations rich and technicals weak, we favor IG over HY.
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Industry Flows
Money in motion by Morningstar category
Source: 1 FactSet. S&P 500 1-year return from 13 April 2025 to 13 April 2026. Return is gross and in USD. 2025 Economic Policy Uncertainty Index peak was as of April 2025. 2 FactSet as of 31 March 2026. Valuation discount = MSCI ACWI ex-US Forward P/E divided by S&P 500 minus 1. Forward P/E is next-twelve-months.
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. No forecasts can be guaranteed. The Market Pulse leverages the firm’s intellectual capital to provide perspective on broad market dynamics that are top of mind for asset allocators. We celebrate the rich diversity of opinion within our investment team and are proud to have talented investors who may implement portfolio positions and express different or nuanced views to those contained here, which are aligned to their specific investment philosophy, risk budget and entrusted duty to allocate our client’s capital responsibly.
Approach and methodology: The Market Pulse provides an outlook over a 12-month investment horizon for major asset classes as well as considerations of the prevailing market conditions. Views are driven by both quantitative and qualitative inputs, including, but not limited to, macroeconomic data, valuations, fundamentals and technical variables. 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 securities recommendations, as portfolio positioning, or as an indication of trading intent on behalf of MFS. No forecasts can be guaranteed.
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