Economy & Markets
| Continued economic expansion to remain supportive for equities |
MFS PERSPECTIVE
|
| Higher yields reflect a structural market shift |
MFS PERSPECTIVE
|
| Earnings continue to support equities in 2026 |
MFS PERSPECTIVE
|
| AI capex is expanding the global tech opportunity |
MFS PERSPECTIVE
|
Global Equity
Assets Class Views
|
Fundamentals → |
Earnings Revisions ↑ |
Macro ↓
|
|
JapanJapan offers broad opportunities beyond its reflating economy. Governance reform, rising capital returns, and improving earnings are creating company specific return potential across automation, advanced manufacturing, capital goods, and AI-related supply chain.
|
EMEM equities look increasingly compelling, with solid fundamentals and structural drivers in manufacturing, AI, renewables, and capital market development. Fed policy and China remain risks, but EMs now offer more than a cyclical trade.
|
|
UKUK equities have been helped by the index’s higher exposure to energy and materials, with banks, defense, and industrials adding pockets of earnings strength. But broader confidence still depends on clearer outlooks, margin delivery, and capital discipline.
|
US Equity
Assets Class Views
|
Fundamentals ↑ |
Earnings Revisions ↑ |
Macro ↓
|
GrowthMultiples have de-rated, but fundamentals remain solid as durable revenue growth, healthy margins, and AI-related spending drive earnings resilience. Rising demand for AI responses combined with constraints in compute, power, and datacenter capacity could extend the AI investment cycle and sustain earnings momentum. Earnings strength is broadening across sectors, creating a wider opportunity set beyond the largest AI beneficiaries and supporting a more balanced and durable growth backdrop.
|
Large CapUS large cap equities remain attractive as strong earnings growth continues to underpin returns, with Q2 results showing broad-based strength and rising full-year expectations. Market leadership is broadening as investors look beyond AI infrastructure toward companies poised to benefit from wider adoption, productivity gains and sustained investment.
|
Small/Mid-CapYTD gains in US SMIDs have been supported by improving earnings expectations rather than multiple expansion, leaving valuations reasonable. With higher bond yields and tighter financial conditions favoring quality balance sheets, we prefer a selective approach with an emphasis on higher-quality mid-cap companies.
|
ValueSelective positioning within value remains important as investors seek diversification beyond the narrow, AI-driven market leadership. Resilient US growth, elevated interest rates, constrained energy supply, and sustained demand for hard assets provide a supportive backdrop for value-oriented companies with durable cash flows and pricing power.
|
Sovereigns
Assets Class Views
|
Fundamentals ↓ |
Technicals → |
Valuations ↑
|
Euro Government DebtWe favor European duration over US duration as markets may be pricing too many ECB hikes. While inflation remains elevated, growth and labor market resilience fail to justify three additional hikes. The ECB hiked for a second time this year, bringing its policy rate to 2.5%, as headline inflation remains above target and energy prices continue to pose upside risks. However, while economic activity and labor markets remain resilient, we believe the euro area remains far from the cyclical recovery needed to justify the three additional rate hikes markets are pricing through July 2027. As such, European duration appears relatively attractive at this juncture. |
US TreasuriesGeopolitical, fiscal, and monetary concerns have pushed market rates higher. Even with yields now more compelling, we remain neutral given the policy risks and macro uncertainty. The Fed has shifted its focus to inflation, which remains sticky and above target. The upside risks to inflation mainly reflect the impact of higher oil prices as the US–Iran conflict drags on.
After it hiked at its September meeting, markets expect the Fed to remain hawkish, pricing in two additional hikes throughout 2027.
While the near-term outlook for duration is challenging and volatile, Treasuries still offer some risk-off protection should growth weaken and investment sentiment deteriorate. |
Global Fixed Income
Assets Class Views
|
Fundamentals ↑ |
Technicals → |
Valuations ↓
|
US IGCorporate fundamentals are robust, profit margins remain elevated, and free cash flow generation has been increasing. Despite geopolitical uncertainty, the business environment remains strong, as illustrated by remarkable S&P 500 earnings growth in Q2. Spreads remain tight, but their resilience helps position US IG well compared with purely rate driven asset classes. In addition, all-in yields are attractive by historical standards. |
US HYYields above 7%, resilient credit fundamentals, low defaults, and distressed ratios continue to support high yield. However, tight spreads reinforce the need for selectivity. Higher-quality, shorter-maturity HY issuers appear more attractive.
|
Euro IGFundamentals remain resilient, with upgrades outpacing downgrades and earnings holding up despite slow growth. Tight spreads and higher energy-driven inflation reinforce the importance of active security selection and strong risk management. |
Euro HYCarry and short duration remain supportive of European HY, with manageable supply helping technicals. Fundamentals have softened and spreads offer limited compensation for the risk, making lower-quality issuers more vulnerable. Active security selection is key. |
EMD LC DebtGeopolitical volatility has weighed on EM currencies but our longer-term outlook remains constructive as the long-term headwinds to the dollar have not faded. A more tactical asset class by nature, shifts in risk sentiment can create challenges and opportunities.
|
EMD HC DebtEM debt has remained resilient despite geopolitical risks, supported by stronger fundamentals than in past cycles. While yields remain attractive, tight spreads and longer duration temper the outlook, leading us to prefer shorter duration fixed income. |
Industry Flows
Money in motion by Morningstar category
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.
Index data source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.
Frank Russell Company ("Russell") is the source and owner of the Russell Index data contained or reflected in this material and all trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell's express written consent. Russell does not promote, sponsor or endorse the content of this communication.
“Standard & Poor’s® ” and S&P “S&P® ” are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and have been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by MFS. The S&P 500® is a product of S&P Dow Jones Indices LLC, and has been licensed for use by MFS. MFS’ Products are not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones Indices LLC, Dow Jones, S&P, their respective affiliates make any representation regarding the advisability of investing in such products. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Bloomberg neither approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. The views expressed are subject to change at any time.
These views should not be relied upon as investment advice, as portfolio positioning, as securities, recommendations or as an indication of trading intent on behalf of the advisor. No forecasts can be guaranteed.