Market Insights
Global Market Pulse (USD)
December 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
Gold’s surge extends its two-year run MFS PERSPECTIVE
- Certain central banks have increased gold purchases as they lessen their reliance on the dollar.
- Geopolitical risks have enhanced gold's safe haven role, but fears of currency debasement have also boosted speculative demand.
- The rally is unusual as it is positively correlated with equities, partly on AI bubble fears.
Despite uncertainty, bond fund flows have been robust MFS PERSPECTIVE
- Following a terrific 2024, with nearly $1 trillion in total inflows, global bond funds continue to see demand from investors.
- After shaking off the “Liberation Day” tariff announcements, bond fund flows have recovered to levels last seen in 2020.
- Strong demand helps support future issuance, corporate fundamentals and valuations.
Financing needs for the AI revolution are broadening MFS PERSPECTIVE
- Much of the AI data center funding to date has come directly from hyperscaler free cash flow, but continued growth will likely need additional financing measures.
- Public and private credit markets will play a major role in future capex.
- Off-balance sheet financing vehicles and other creative structures are potential areas of concern
European earnings growth is expected to converge with the US in 2026 MFS PERSPECTIVE
- US equities trade at a significant premium to Europe, but a narrowing earnings growth gap suggests this premium should decline.
- There is scope for European multiples to expand as economic growth recovers, while US multiples already reflect already high levels of optimism.
- However, US tech is expected to maintain its lead.
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US Equity
US
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
- The path and timing of interest rate cuts remain uncertain as sticky inflation persists.
- US equities have benefitted from pro-growth policies, but valuations appear stretched, and earnings growth from mega-cap names is likely to decelerate, making other markets relatively more attractive.
- AI capex spending should continue for the foreseeable future, providing opportunities to invest in companies that stand to profit from this buildout.
MFS CONSIDERATIONS LARGE CAP
- Earnings will likely be the primary driver of performance moving forward, with valuations in large caps appearing stretched.
- Outside of mega-cap tech, improving earnings breadth should provide a broadening of performance.
- A slowdown in mega-cap earnings is expected as increasing capex impacts the income statement.
SMALL/MID CAP
- We favor mid-caps over small caps, as their valuations and profitability profiles are relatively attractive.
- Deregulation is likely to help mid-caps the most, as they face higher regulatory burdens than both small and large caps.
- Declining rates, deregulation and pro-growth fiscal policies should continue to provide tailwinds for both small and mid-caps.
GROWTH
- Investor concerns over steep valuations and potential overexuberance in the AI trade have resulted in a recent pullback.
- We favor companies with lower leverage and those better positioned to withstand any disappointments relative to expectations for AI-related earnings.
VALUE
- An economic reacceleration should support cyclical value companies.
- The deep valuation discount for value stocks relative to growth stocks remains.
- Value stocks are well positioned to benefit from lower interest rates, increasing capex spending and the themes of reshoring and electrification.
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Global Developed Equity - Ex US
EUROPE EX UK
- German fiscal expansion has been disappointing so far, but is expected to accelerate.
- Growth driven by fixed investment and household consumption is offsetting weaker net exports.
- Surplus cash flow is driving increased M&A activity.
MFS CONSIDERATIONS
- Opportunities are developing as Europe’s growth recovers, along with its structural investment needs.
- AI-driven efficiency gains aren’t limited to the US; AI adoption in Europe presents opportunities for productivity and enhanced returns.
UK
- The UK’s autumn budget will be closely watched for potential negative impacts on growth.
- Despite sour sentiment, business conditions continue to improve, with the composite PMI index remaining positive for six consecutive months.
MFS CONSIDERATIONS
- The FTSE 100 is not highly representative of the UK economy and offers diverse opportunities to buy quality companies at attractive valuations.
- Market leadership may rotate due to ongoing global and domestic challenges.
JAPAN
- Japan’s persistent labor shortages and rising wages are driving a structural shift toward firmer inflation.
- Inflation is causing a greater focus on cash and balance sheet management among corporations and consumers.
MFS CONSIDERATIONS
- The new Takaichi government, with its emphasis on economic security, is pursuing supportive fiscal policies.
- Higher wages are positive for consumption, while fiscal policy should support increased investment.
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Emerging Markets
EM EQUITY
- A détente between China and the US provides some near-term relief as both sides buy time.
- Recent USD strength has been a headwind, though we continue to believe the USD will weaken over time.
MFS CONSIDERATIONS
- Emerging markets offer opportunities in the growth of the AI and tech ecosystem, as well as strategic raw materials.
- Position portfolios to capture structural growth themes while mitigating currency and liquidity risks.
EM DEBT - HARD CURRENCY
- Fund flows have been positive, supporting tight valuations.
- Yields, like fundamentals, have weakened but remain attractive relative to longer-term history.
MFS CONSIDERATIONS
- EM is more exposed to global risks, making sovereign credit selection paramount.
- However, EM has been resilient in the face of heightened geopolitical risks and trade uncertainty. There are still attractive opportunities within the asset class.
EM DEBT - LOCAL CURRENCY
- Post-“Liberation Day” USD weakness has supported EM currencies.
- With decelerating inflation and additional central bank easing expected, fundamentals have been supportive of local duration.
MFS CONSIDERATIONS
- Elevated real interest rates provide opportunities to selectively add duration.
- A weaker dollar environment could continue to act as a tailwind.
- Given the more tactical characteristics of the asset class, monitor the backdrop for risk appetite.
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Global Fixed Income
USD DURATION
- Concerns about a weakening labor market and slowing economic growth have spurred the Fed to restart its rate-cutting cycle. However, inflation remains sticky, potentially limiting the scope of future cuts, even though the market has already priced in a fair amount of easing.
MFS CONSIDERATIONS - A neutral stance toward duration is warranted, given the rising tension between the Fed’s price stability and full employment mandates.
US IG CORP
- A recently weaker macro backdrop, combined with historically tight spreads, places a premium on credit selection.
- The asset class remains resilient, but we favor an up-in-quality bias given greater macro uncertainty
MFS CONSIDERATIONS - Fundamentals remain solid, helped by historically low leverage and strong earnings.
- Expected returns are likely to be supported by carry, but yields have declined recently, making this a less attractive entry point.
EURO IG CORP
- Fundamentals remain sound, and European fiscal expansion should benefit sectors such as defense and utilities.
- However, spread valuations have compressed to record tights, having been supported by robust technicals.
MFS CONSIDERATIONS - Macro uncertainty, the end of the ECB easing cycle and tight spreads leave us with a more defensive bias.
- While the macro-outlook is challenging, relative value can be found versus the US in sectors with better risk/reward profiles.
EURO DURATION*
- The ECB has completed its rate-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 act as tailwinds to growth.
MFS CONSIDERATIONS - The disinflationary cycle has run its course, leaving risks to the growth outlook more balanced.
- Keep an eye on changes in trade policy and fiscal impacts that might drive adjustments to monetary policy.
US HIGH YIELD
- Fundamentals remain solid, helped by a historically low leverage and strong earnings.
- Recent private credit bankruptcies appear idiosyncratic, contained and unlikely to spill over into high yield.
MFS CONSIDERATIONS - We believe that the risk/reward for total returns is still favorable, but security selection remains critical.
- In an environment of higher macro uncertainty, where credit concerns are top of mind, this asset class may not be suitable for everyone.
EURO HIGH YIELD
- Macro uncertainty, combined with tight spreads leaves us more cautious toward the asset class.
- However, breakeven yields remain attractive, technicals remain supportive and fundamentals are stable.
MFS CONSIDERATIONS - Strong technicals and sound fundamentals are offset by an uncertain growth outlook and tight spreads, leaving us defensively biased.
- Security selection remains key, given the dispersion of fundamental stories at the security level.
Economy & Markets
| Gold’s surge extends its two-year run |
MFS PERSPECTIVE
|
| Despite uncertainty, bond fund flows have been robust |
MFS PERSPECTIVE
|
| Financing needs for the AI revolution are broadening |
MFS PERSPECTIVE
|
| European earnings growth is expected to converge with the US in 2026 |
MFS PERSPECTIVE
|
| US |
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
|
| MFS CONSIDERATIONS |
| LARGE CAP |
- Earnings will likely be the primary driver of performance moving forward, with valuations in large caps appearing stretched.
- Outside of mega-cap tech, improving earnings breadth should provide a broadening of performance.
- A slowdown in mega-cap earnings is expected as increasing capex impacts the income statement.
| SMALL/MID CAP |
- We favor mid-caps over small caps, as their valuations and profitability profiles are relatively attractive.
- Deregulation is likely to help mid-caps the most, as they face higher regulatory burdens than both small and large caps.
- Declining rates, deregulation and pro-growth fiscal policies should continue to provide tailwinds for both small and mid-caps.
| GROWTH |
- Investor concerns over steep valuations and potential overexuberance in the AI trade have resulted in a recent pullback.
- We favor companies with lower leverage and those better positioned to withstand any disappointments relative to expectations for AI-related earnings.
| VALUE |
- An economic reacceleration should support cyclical value companies.
- The deep valuation discount for value stocks relative to growth stocks remains.
- Value stocks are well positioned to benefit from lower interest rates, increasing capex spending and the themes of reshoring and electrification.
| EUROPE EX UK |
- German fiscal expansion has been disappointing so far, but is expected to accelerate.
- Growth driven by fixed investment and household consumption is offsetting weaker net exports.
- Surplus cash flow is driving increased M&A activity.
| MFS CONSIDERATIONS |
- Opportunities are developing as Europe’s growth recovers, along with its structural investment needs.
- AI-driven efficiency gains aren’t limited to the US; AI adoption in Europe presents opportunities for productivity and enhanced returns.
| UK |
- The UK’s autumn budget will be closely watched for potential negative impacts on growth.
- Despite sour sentiment, business conditions continue to improve, with the composite PMI index remaining positive for six consecutive months.
| MFS CONSIDERATIONS |
- The FTSE 100 is not highly representative of the UK economy and offers diverse opportunities to buy quality companies at attractive valuations.
- Market leadership may rotate due to ongoing global and domestic challenges.
| JAPAN |
- Japan’s persistent labor shortages and rising wages are driving a structural shift toward firmer inflation.
- Inflation is causing a greater focus on cash and balance sheet management among corporations and consumers.
| MFS CONSIDERATIONS |
- The new Takaichi government, with its emphasis on economic security, is pursuing supportive fiscal policies.
- Higher wages are positive for consumption, while fiscal policy should support increased investment.
| EM EQUITY |
- A détente between China and the US provides some near-term relief as both sides buy time.
- Recent USD strength has been a headwind, though we continue to believe the USD will weaken over time.
| MFS CONSIDERATIONS |
- Emerging markets offer opportunities in the growth of the AI and tech ecosystem, as well as strategic raw materials.
- Position portfolios to capture structural growth themes while mitigating currency and liquidity risks.
| EM DEBT - HARD CURRENCY |
- Fund flows have been positive, supporting tight valuations.
- Yields, like fundamentals, have weakened but remain attractive relative to longer-term history.
| MFS CONSIDERATIONS |
- EM is more exposed to global risks, making sovereign credit selection paramount.
- However, EM has been resilient in the face of heightened geopolitical risks and trade uncertainty. There are still attractive opportunities within the asset class.
| EM DEBT - LOCAL CURRENCY |
- Post-“Liberation Day” USD weakness has supported EM currencies.
- With decelerating inflation and additional central bank easing expected, fundamentals have been supportive of local duration.
| MFS CONSIDERATIONS |
- Elevated real interest rates provide opportunities to selectively add duration.
- A weaker dollar environment could continue to act as a tailwind.
- Given the more tactical characteristics of the asset class, monitor the backdrop for risk appetite.
| USD DURATION |
- Concerns about a weakening labor market and slowing economic growth have spurred the Fed to restart its rate-cutting cycle. However, inflation remains sticky, potentially limiting the scope of future cuts, even though the market has already priced in a fair amount of easing.
| MFS CONSIDERATIONS |
- A neutral stance toward duration is warranted, given the rising tension between the Fed’s price stability and full employment mandates.
| US IG CORP |
- A recently weaker macro backdrop, combined with historically tight spreads, places a premium on credit selection.
- The asset class remains resilient, but we favor an up-in-quality bias given greater macro uncertainty
| MFS CONSIDERATIONS |
- Fundamentals remain solid, helped by historically low leverage and strong earnings.
- Expected returns are likely to be supported by carry, but yields have declined recently, making this a less attractive entry point.
| EURO IG CORP |
- Fundamentals remain sound, and European fiscal expansion should benefit sectors such as defense and utilities.
- However, spread valuations have compressed to record tights, having been supported by robust technicals.
| MFS CONSIDERATIONS |
- Macro uncertainty, the end of the ECB easing cycle and tight spreads leave us with a more defensive bias.
- While the macro-outlook is challenging, relative value can be found versus the US in sectors with better risk/reward profiles.
| EURO DURATION* |
- The ECB has completed its rate-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 act as tailwinds to growth.
| MFS CONSIDERATIONS |
- The disinflationary cycle has run its course, leaving risks to the growth outlook more balanced.
- Keep an eye on changes in trade policy and fiscal impacts that might drive adjustments to monetary policy.
| US HIGH YIELD |
- Fundamentals remain solid, helped by a historically low leverage and strong earnings.
- Recent private credit bankruptcies appear idiosyncratic, contained and unlikely to spill over into high yield.
| MFS CONSIDERATIONS |
- We believe that the risk/reward for total returns is still favorable, but security selection remains critical.
- In an environment of higher macro uncertainty, where credit concerns are top of mind, this asset class may not be suitable for everyone.
| EURO HIGH YIELD |
- Macro uncertainty, combined with tight spreads leaves us more cautious toward the asset class.
- However, breakeven yields remain attractive, technicals remain supportive and fundamentals are stable.
| MFS CONSIDERATIONS |
- Strong technicals and sound fundamentals are offset by an uncertain growth outlook and tight spreads, leaving us defensively biased.
- 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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