Market Insights Team
KEY TAKEAWAYS
|
Economy & Markets
Global Growth Broadens Beyond Services |
MFS PERSPECTIVE
|
Year-End Rate Expectations Have Risen Above Pre-War Levels |
MFS PERSPECTIVE
|
Stronger Earnings Outlook Supports Equities |
MFS PERSPECTIVE
|
Value Revives As Momentum Loses Steam |
MFS PERSPECTIVE
|
Global Developed Equity - US (Euro based)
| US |
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
|
| MFS CONSIDERATIONS |
| LARGE CAP |
|
| SMALL/MID CAP |
|
| GROWTH |
|
| VALUE |
|
Global Developed Equity - Ex US (Euro based)
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
| EUROPE EX UK |
- Earnings are improving as manufacturing stabilizes and AI demand broadens.
- Fiscal, defense, and infrastructure spending is lifting investment across more sectors.
- Valuations remain supportive, though renewed Iran risk warrants caution.
| MFS CONSIDERATIONS |
- We favor firms tied to capex, automation, electrification, and power infrastructure.
- High valuation dispersion supports active stock selection across regions and sectors.
- Resilient earnings, pricing power, and balance sheet strength may offset macro sensitivity.
| UK |
- A new prime minister is in place, but global growth and rates still drive UK equities more than politics.
- Inflation weighs on sentiment, but earnings remain resilient.
- Valuations remain attractive amid subdued investor interest.
| MFS CONSIDERATIONS |
- Wide valuation discounts may offer upside where fundamentals prove resilient.
- Global revenue exposure may help offset softer domestic activity.
- M&A interest continues to highlight the gap between public prices and private views of value.
| JAPAN |
- Nominal growth, wages, and inflation signal a shift from the deflationary past.
- Manufacturing, automation, and tech are aided by global capex and AI spend.
- Earnings are increasingly driven by fundamentals, not currency alone.
| MFS CONSIDERATIONS |
- Corporate profitability and shareholder focus remain supportive of earnings growth.
- Opportunities extend beyond exporters as wages and domestic demand improve.
- Performance is increasingly tied to company fundamentals, not broad macro trends.
Emerging Markets (Euro based)
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
| EM EQUITY |
- Earnings remain strong, supported by semis and AI.
- Manufacturing activity and global capex continue to support export-oriented markets.
- Investors are watching whether strong tech earnings broaden across sectors and regions.
| MFS CONSIDERATIONS |
- Technology supply chains remain key beneficiaries of AI-related spending.
- Greater differentiation across countries and sectors may create a wider opportunity set, while energy-dependent countries face the return of higher energy prices.
| EM DEBT - HARD CURRENCY |
- Emerging markets’ increasingly developed fiscal and monetary frameworks leave fundamentals structurally stronger than in prior cycles.
- Yield remains attractive, but spreads are hovering just above all-time tights, leaving valuations rich.
| MFS CONSIDERATIONS |
- EM has been remarkably resilient amid ongoing geopolitical risk.
- However, the longer duration of the asset class may be a headwind if inflation picks up.
- We prefer shorter-duration asset classes like high yield for return-seeking fixed income.
| EM DEBT - LOCAL CURRENCY |
- Iran-driven EM currency weakness has been a setback to otherwise strong recent returns.
- Longer-term headwinds to the dollar have not disappeared, and declines in the dollar are typically beneficial to EM fundamentals.
| MFS CONSIDERATIONS |
- A more tactical asset class by nature, swings in risk sentiment and global rate expectations can provide windows of strain and opportunity.
- After a strong first half, EM currency valuations have become less compelling as the euro has cheapened.
BLANK
Global Fixed Income (Euro based)
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
| USD DURATION |
- Despite softer June figures, inflation remains sticky and above target, while renewed US–Iran tensions pose upside risks.
- Markets have shifted from pricing Fed cuts to being biased toward future hikes.
| MFS CONSIDERATIONS |
- A more hawkish Fed and renewed geopolitical tensions risk putting upward pressure on long-term yields.
- Treasuries still offer risk-off protection should growth weaken and investment sentiment deteriorate.
| US IG CORP |
- Corporate fundamentals remain solid, with healthy balance sheets, record earnings, and attractive yields supporting demand.
- Spreads remain tight; geopolitical tensions and elevated AI-related issuance are key risks.
| MFS CONSIDERATIONS |
- Broadening AI-driven growth is supportive of risk and less defensive positioning.
- However, with spread valuations less compelling, active security selection is increasingly important.
| EURO IG CORP |
- Fundamentals remain resilient, with upgrades outpacing downgrades and earnings holding up despite weak growth.
- Tight spreads and higher energy prices keep the backdrop challenging, limiting the appeal of EUR IG versus higher-yielding alternatives.
| MFS CONSIDERATIONS |
- A higher-inflation, slower-growth backdrop favors active security selection and strong risk management.
- The market has absorbed heavy issuance well, but sustained supply could become a headwind if investor demand softens.
| EURO DURATION* |
- Despite ongoing geopolitically driven inflation uncertainty, June’s hike has improved the outlook for duration as the extent of any further ECB tightening remains unclear.
- Soft European growth may cap how much further the ECB can tighten and could open the door for cuts down the road.
| MFS CONSIDERATIONS |
- With ongoing inflation uncertainty, the ECB will likely stress policy path flexibility and a meeting-by-meeting approach to future interest-rate decisions.
| US HIGH YIELD |
- All-in yields above 7% remain attractive, while spreads have largely recovered from their geopolitically driven widening.
- Credit fundamentals remain strong, with higher-quality borrowers supporting resilience.
| MFS CONSIDERATIONS |
- Higher-quality, shorter-maturity HY issuers appear more attractive, while pockets of stress in lower-rated issuance reinforce the need for selectivity.
- Improving technicals since May have provided additional support for the asset class.
| EURO HIGH YIELD |
- Carry and short duration continue to support European HY, while manageable net supply underpins technicals.
- Fundamentals have softened, particularly among lower-rated issuers, but not enough to materially alter the default outlook.
| MFS CONSIDERATIONS |
- We are most cautious on European high yield, where valuations offer limited compensation for the risk.
- Lower-quality issuers remain most exposed to further escalation; active security selection is key as dispersion rises.
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