Market Insights
Global Market Pulse (USD)
February 2026
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
Downside Risks to the Dollar MFS PERSPECTIVE
- In 2025, the dollar struggled against both advanced and emerging market currencies.
- In 2026, the dollar may weaken more gradually against the euro but remain soft versus emerging markets.
- Continued dollar weakness, tied to doubts about US policy, may boost emerging market returns.
The Global Growth Outlook Remains Solid MFS PERSPECTIVE
- The data suggest that growth is not slowing, consistent with resilient but moderating expansion.
- Improving signals reflect solid economic activity and sustained AI‑led investment, particularly in the US and Europe.
- However, risks remain, including technology de‑rating, inflation, and trade and geopolitical tensions.
Divergent Central Bank Policy May Drive Return Differentials MFS PERSPECTIVE
- After several years of a globally-synchronized rate cycle, central bank policy stances are diverging as policymakers focus on their own domestic conditions.
- Active fixed income managers can utilize this divergence to avoid frothy rate markets and invest where the duration outlook is favorable.
Global Earnings Expectations Are Broadening Out MFS PERSPECTIVE
- The earnings growth gap between megacap technology companies and the rest of the global market is narrowing.
- Improving breadth of earnings is positive for performance breadth.
- Increasing capex from the hyperscalers may further narrow price performance as cash is utilized for AI spending rather than share repurchases.
- In 2025, the dollar struggled against both advanced and emerging market currencies.
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US Equity
US
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
- We have increased our rating as the environment remains constructive, supported by earnings and a potential reacceleration of economic growth in 2026.
- Valuations reflect high expectations, so strong corporate earnings will continue to be the primary return driver moving forward.
- The monetary and fiscal policy backdrop remains supportive.
- We favor large and mid-cap stocks over small caps, as well as value over growth.
MFS CONSIDERATIONS LARGE CAP
- High valuations remain a risk, but megacap tech leadership has been supported by outsized earnings.
- Broadening earnings and increased economic activity may catalyze continued rotation into cyclical and value stocks.
SMALL/MID CAP
- A strong US consumer provides support for SMIDs, which tend to derive revenue from domestic sources.
- Valuations remain discounted relative to large caps.
- SMIDs tend to have higher sensitivity to borrowing costs and should perform well in a declining rate environment.
GROWTH
- Relative earnings growth between the megacap technology names and the rest of the index is expected to narrow in 2026.
- Growth valuations remain stretched and will likely rely on strong earnings to continue performing well.
VALUE
- Reaccelerating economic growth could be a catalyst for cyclical value stocks to outperform moving forward.
- The valuation discount between growth and value persists, making value appear relatively attractive.
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Global Developed Equity - Ex US
EUROPE EX UK
- Europe stays in expansionary territory as growth firms, with the focus on the German fiscal rollout.
- Lower rates are lifting sentiment and are reflected in improving PMIs.
- Earnings are set for a meaningful recovery in 2026.
MFS CONSIDERATIONS
- Combined fiscal support and easier monetary policy should aid the earnings recovery.
- Markets have re‑rated; beta returns are now more likely to track underlying earnings trends.
- Focus on fundamentals and selective opportunities, avoid risks from intensified competition with China.
UK
- UK growth remains subdued, with a softening labor market weighing on the domestic outlook while fiscal constraints limit policy flexibility.
- Despite this, the FTSE offers broad exposure to global structural themes.
MFS CONSIDERATIONS
- UK banks remain well positioned, even after recent outperformance, supported by strong capital and balance sheets.
- The FTSE provides access to leading materials, defense, and staples names, reinforcing the UK as a stockpicker’s market.
JAPAN
- Japan is supported by a constructive global backdrop, expectations of positive real wage growth, and expansionary fiscal policy.
- Risks remain, including Japan‑China tensions and fiscal sustainability concerns.
MFS CONSIDERATIONS
- Governance and ROE reforms continue to drive buybacks, M&A, and shareholder returns.
- Earnings upgrades remain strong and valuations undemanding, but remain cautious over rising rates.
- Foreign inflows are returning as sentiment improves.
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Emerging Markets
EM EQUITY
- EM growth continues to outperform, while inflation remains contained.
- AI‑related optimism supports the outlook across Asia.
- Local currency strength adds to return potential.
MFS CONSIDERATIONS
- Valuations remain attractive across many markets.
- Earnings upside is broadening, led by tech and materials.
- LATAM offers selective opportunities as geopolitics, rate cuts and political shifts create dispersion.
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 Trump’s 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 inflation back to target and external positions strong.
MFS CONSIDERATIONS
- Real rate differentials with DM provide opportunities to add duration.
- Given the more tactical nature 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 are offset by forecasts of weaker inflation.
- However, the impact of tariffs may put pressure on core goods and the Fed’s mandate.
- Bias is skewed towards modest further easing from here.
MFS CONSIDERATIONS - Staying neutral as the macro backdrop is tilted towards being duration supportive.
- Amid increased focus on labor data, payrolls 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 monetary policy tilted towards additional rate cuts, we remain favorable on US IG.
- Relative to high yield, IG credit’s higher duration will benefit from any rate cuts.
- 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 - Yield valuations remain compelling despite time spreads.
- The macro outlook of modest growth but low inflation is a healthy environment for IG credit returns.
- Favorable on the defensive nature of IG vs. high yield, given valuations.
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, supporting duration.
US HIGH YIELD
- Fundamentals are robust; leverage and interest coverage remain near long-term averages.
- Other positive drivers include low default rate projections, strong fund flows and a supportive macro outlook.
- However, spreads are currently at their tightest levels since 2007
MFS CONSIDERATIONS - The risk-return proposition with spreads richly valued leaves us neutral.
- Preference for sectors such as financials while steering away from secularly-challenged industries.
- Dispersion is low, so security selection is key.
EURO HIGH YIELD
- Fundamentals have softened, but from a strong base.
- Looser monetary policy should help offset further fundamental deterioration.
- Increasing European credit growth is a tailwind for sticky spread valuations.
MFS CONSIDERATIONS - Strong technicals and modest fundamentals are offset by tight spreads.
- Continued preference for up-in-credit-quality like other asset classes.
- Preference for US high yield vs. Europe, given a larger idiosyncratic opportunity set.
Economy & Markets
| Downside Risks to the Dollar |
MFS PERSPECTIVE
|
| The Global Growth Outlook Remains Solid |
MFS PERSPECTIVE
|
| Divergent Central Bank Policy May Drive Return Differentials |
MFS PERSPECTIVE
|
| Global Earnings Expectations Are Broadening Out |
MFS PERSPECTIVE
|
| US |
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
|
| MFS CONSIDERATIONS |
| LARGE CAP |
- High valuations remain a risk, but megacap tech leadership has been supported by outsized earnings.
- Broadening earnings and increased economic activity may catalyze continued rotation into cyclical and value stocks.
| SMALL/MID CAP |
- A strong US consumer provides support for SMIDs, which tend to derive revenue from domestic sources.
- Valuations remain discounted relative to large caps.
- SMIDs tend to have higher sensitivity to borrowing costs and should perform well in a declining rate environment.
| GROWTH |
- Relative earnings growth between the megacap technology names and the rest of the index is expected to narrow in 2026.
- Growth valuations remain stretched and will likely rely on strong earnings to continue performing well.
| VALUE |
- Reaccelerating economic growth could be a catalyst for cyclical value stocks to outperform moving forward.
- The valuation discount between growth and value persists, making value appear relatively attractive.
| EUROPE EX UK |
- Europe stays in expansionary territory as growth firms, with the focus on the German fiscal rollout.
- Lower rates are lifting sentiment and are reflected in improving PMIs.
- Earnings are set for a meaningful recovery in 2026.
| MFS CONSIDERATIONS |
- Combined fiscal support and easier monetary policy should aid the earnings recovery.
- Markets have re‑rated; beta returns are now more likely to track underlying earnings trends.
- Focus on fundamentals and selective opportunities, avoid risks from intensified competition with China.
| UK |
- UK growth remains subdued, with a softening labor market weighing on the domestic outlook while fiscal constraints limit policy flexibility.
- Despite this, the FTSE offers broad exposure to global structural themes.
| MFS CONSIDERATIONS |
- UK banks remain well positioned, even after recent outperformance, supported by strong capital and balance sheets.
- The FTSE provides access to leading materials, defense, and staples names, reinforcing the UK as a stockpicker’s market.
| JAPAN |
- Japan is supported by a constructive global backdrop, expectations of positive real wage growth, and expansionary fiscal policy.
- Risks remain, including Japan‑China tensions and fiscal sustainability concerns.
| MFS CONSIDERATIONS |
- Governance and ROE reforms continue to drive buybacks, M&A, and shareholder returns.
- Earnings upgrades remain strong and valuations undemanding, but remain cautious over rising rates.
- Foreign inflows are returning as sentiment improves.
| EM EQUITY |
- EM growth continues to outperform, while inflation remains contained.
- AI‑related optimism supports the outlook across Asia.
- Local currency strength adds to return potential.
| MFS CONSIDERATIONS |
- Valuations remain attractive across many markets.
- Earnings upside is broadening, led by tech and materials.
- LATAM offers selective opportunities as geopolitics, rate cuts and political shifts create dispersion.
| 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 Trump’s 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 inflation back to target and external positions strong.
| MFS CONSIDERATIONS |
- Real rate differentials with DM provide opportunities to add duration.
- Given the more tactical nature of the asset class, watch the risk appetite backdrop.
| USD DURATION |
- Slower economic growth and concerns around a weakening labor market are offset by forecasts of weaker inflation.
- However, the impact of tariffs may put pressure on core goods and the Fed’s mandate.
- Bias is skewed towards modest further easing from here.
| MFS CONSIDERATIONS |
- Staying neutral as the macro backdrop is tilted towards being duration supportive.
- Amid increased focus on labor data, payrolls 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 monetary policy tilted towards additional rate cuts, we remain favorable on US IG.
- Relative to high yield, IG credit’s higher duration will benefit from any rate cuts.
- 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 |
- Yield valuations remain compelling despite time spreads.
- The macro outlook of modest growth but low inflation is a healthy environment for IG credit returns.
- Favorable on the defensive nature of IG vs. high yield, given valuations.
| 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, supporting duration.
| US HIGH YIELD |
- Fundamentals are robust; leverage and interest coverage remain near long-term averages.
- Other positive drivers include low default rate projections, strong fund flows and a supportive macro outlook.
- However, spreads are currently at their tightest levels since 2007
| MFS CONSIDERATIONS |
- The risk-return proposition with spreads richly valued leaves us neutral.
- Preference for sectors such as financials while steering away from secularly-challenged industries.
- Dispersion is low, so security selection is key.
| EURO HIGH YIELD |
- Fundamentals have softened, but from a strong base.
- Looser monetary policy should help offset further fundamental deterioration.
- Increasing European credit growth is a tailwind for sticky spread valuations.
| MFS CONSIDERATIONS |
- Strong technicals and modest fundamentals are offset by tight spreads.
- Continued preference for up-in-credit-quality like other asset classes.
- Preference for US high yield vs. Europe, given a larger idiosyncratic opportunity set.
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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