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.
- Investment Professional
- Insights
- Market Insights
- Market Pulse
Market Insights Team
KEY TAKEAWAYS
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Economy & Markets
Economy & Markets
| US Consumer
Solid spending helps alleviate recession concerns MFS PERSPECTIVE
- A solid US consumer reflects the steady labor market, robust asset prices and growing disposable incomes.
- The US business cycle appears headed for a moderate slowdown, but we don’t believe that it will be tipped into recession.
| Corporate Profitability
Senate revisions boost provisions for equipment and R&D expensing MFS PERSPECTIVE
- Allowing for 100% bonus depreciation of equipment and R&D supports increased investment in both these areas.
- Longer term, it is beneficial for margins and may help alleviate the impact of tariffs on corporate profits.
| Housing & Inflation
Data suggest continued declines in shelter costs MFS PERSPECTIVE
- Shelter inflation, official known as OER, is traditionally one of the most lagged components of inflation.
- OER lagged the peak in CPI by 12 months and lagged market-based home and rental pricing by nearly 18 months.
- Weak market-based pricing has pushed OER down. With demand still shaky, we expect this disinflation to continue.
| The USD and Non-US Equities
Non-US equities have gotten a boost from a weaker US dollar MFS PERSPECTIVE
- Until recently, non-US equities had been out of fashion for years.
- Overseas shares have performed strongly this year, but their performance in local currencies has been even better.
- A falling US dollar has turbocharged gains for US investors who are willing to accept currency risks.
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Asset Allocation
Asset Allocation
Relative to investor’s strategic asset allocation
We are not through with geopolitical and US policy concerns, but both equities and bonds look attractive, albeit with significant valuation risk.
MFS PERSPECTIVE
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2
3
4
We are waiting for more clarity around tariffs and fiscal policy in the US and their potential effects on earnings. Interestingly, the S&P 500 is trading at the same P/E multiple (23x) as in early 2022 before multiples crashed due to Fed tightening.
Equity sentiment in the US has been buoyed by the likelihood of a budget reconciliation bill being signed into law, talk of additional trade deals being close to the finish line and the potential for Fed easing in the second half of the year.
The FOMC is still in wait-and-see mode, with two rate cuts priced in for the remainder of the year. They will be poring over the latest employment, inflation and housing data, looking for clarity on tariff impacts before their lateJuly meeting.
Spreads are rich but could remain well behaved unless we see a slowdown. While it’s likely we’ll see a few Fed cuts and some curve steepening, rates shouldn’t be the primary driver. We believe coupons will drive fixed income returns for the remainder of the year.
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 are not limited to, macro-economic data, valuations, fundamentals and technical variables.
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Equity
US Equity
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
- US equity markets are not pricing in tariff implications or elevated geopolitical tensions as the ninety-day negotiation window closes on July 9.
- Equity markets continue to rise despite declining earnings revisions for 2025, driving valuations higher.
- A weaker dollar will be supportive for US companies with offshore earnings.
- Reduced corporate taxes in the One Big Beautiful Bill may drive a revival in capex and R&D over the next few years.
- Q2 earnings season will be closely scrutinized for tariff impacts.
- We prefer large cap over small, and value over growth.
MFS CONSIDERATIONS
LARGE CAP
- A strong rebound in semiconductor stocks has powered the equity rally.
- Large-cap names continue to dominate and drive index performance.
- Valuations across multiple metrics remain near long-term highs while the market climbs a wall of worry.
- We remain cautious ahead of policy impacts on earnings.
SMALL/MID CAP
- Elevated inflation and interest rates remain a headwind for SMID as earnings growth remains meager.
- Valuations are supportive and improving productivity and ongoing deregulation may drive earnings improvement.
- We favor midcaps over small caps given their lower financial leverage and stronger profit margins.
GROWTH - Growth rebounded, led by technology and non-regulated utilities.
- Increasing dispersion within the Magnificent Seven improves the opportunities for active managers.
- The outlook for large-cap technology, whose valuations look extended, will drive the performance of growth stocks.
VALUE - Value’s deep discount to growth provides a healthy valuation cushion and offers diversification from concentrated technology-driven indices.
- These stocks are well positioned to benefit from the proposed One Big Beautiful Bill tax changes for capex and R&D.
International Equity
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
BLANK
DEVELOPED INTERNATIONAL EQUITY
- Despite recent events, falling energy prices are a boost to European, UK and Japanese profit margins.
- US dollar weakness is expected to continue providing a tailwind for US holders of foreign shares.
- Trade uncertainty remains a source of potential volatility.
MFS CONSIDERATIONS - Europe is coming off a very low base with falling rates and lower inflation. There is evidence of green shoots in the economic data, which, coupled with fiscal expansion, is structurally positive
- Despite the recent rally, momentum remains positive and European valuations are undemanding.
- Japan continues to benefit from ongoing structural improvements and positive earnings revisions.
- We remain positive on the outlook for both Europe and Japan
EMERGING MARKET EQUITY
- A weaker USD is generally positive for emerging markets, but this is tempered by trade uncertainty.
- The outlook for Latin America continues to recover on the back of greater political stability and improving fundamentals.
- Southeast Asia should continue to benefit from ongoing demand for tech hardware and semiconductors.
MFS CONSIDERATIONS - Caution among China’s consumers remains a concern and further stimulus may be needed to boost local consumption while manufacturing and industrial capacity utilization cools.
- Tariffs remain a worry as slowing global growth and trade is typically a drag on emerging markets.
- Real policy rates remain high and further easing would be supportive for earnings, particularly for Latam countries.
BLANK
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Fixed Income
Fixed Income
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
DURATION
- The macro drivers of duration have been mixed with downside risks to growth counterbalanced by renewed inflation fears.
- While rate volatility has normalized from April’s peak, policy uncertainty and US Treasury technicals appear to have worsened.
MFS CONSIDERATIONS
- Caution towards duration is warranted in view of the challenging macro, policy and technical backdrop.
- The yield curve is likely to steepen further, which will help support the relative attractiveness of the long end.
MUNICIPALS
- Fundamentals, including state finances, remain adequate while the valuation backdrop looks favorable.
MFS CONSIDERATIONS
- Given their low credit risk and favorable tax treatment, we think municipals could represent a great alternative to cash.
SECURITIZED (MBS)
- The agency MBS outlook remains broadly positive, reflecting improved fundamentals and a sound technical backdrop, but higher rate volatility could act as a headwind.
- A combination of more compelling relative valuations, along with a return of institutional buyers to the market, could support MBS.
MFS CONSIDERATIONS
- Agency MBS offer diversification and defensive benefits as well as attractive spreads over Treasuries. With improving valuations and technicals, a favorable stance appears appropriate.
US INV-GRADE CORP
- The macro backdrop should remain supportive, despite the policy uncertainty. Spreads have tightened from April’s wides and look stretched again, putting a premium on credit selection.
- We expect market volatility to remain high, but US IG can remain resilient as long as a recession is averted.
MFS CONSIDERATIONS
- We are neutral given that tight spreads are balanced by a supportive macro backdrop.
- Looking ahead, expected returns are likely to remain adequate, mainly driven by the attractive carry.
US HIGH YIELD
- Fundamentals remain solid, helped by a historically low level of leverage and strong earnings.
- However, in a potentially higher credit risk environment, driven by policy uncertainty, technicals are likely to be challenged while historically rich valuations cheapen.
MFS CONSIDERATIONS
- We believe that the risk/reward for total returns is still favorable, but its relative value proposition has declined.
- Security selection remains critical. In a heightened credit risk environment, this asset class may not be for everyone.
EMERGING MARKET DEBT
- The geopolitical backdrop has worsened considerably, constituting a major headwind for EM. In addition, fundamentals have deteriorated somewhat.
- On the positive side, valuations remain adequate and technicals are supportive, with many investors seen as underinvested.
MFS CONSIDERATIONS
- We have turned more cautious as EM is exposed to global risks, including the impact of tariffs, geopolitics and downside risks to global growth.
- There are still attractive opportunities within EM, but sovereign credit selection is paramount.
BLANK
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.
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.
Unless otherwise indicated, logos and product and service names are trademarks of MFS® and its affiliates and may be registered in certain countries.
Economy & Markets
| US Consumer
Solid spending helps alleviate recession concerns |
MFS PERSPECTIVE
|
| Corporate Profitability
Senate revisions boost provisions for equipment and R&D expensing |
MFS PERSPECTIVE
|
| Housing & Inflation
Data suggest continued declines in shelter costs |
MFS PERSPECTIVE
|
| The USD and Non-US Equities
Non-US equities have gotten a boost from a weaker US dollar |
MFS PERSPECTIVE
|
Asset Allocation
Relative to investor’s strategic asset allocation

We are not through with geopolitical and US policy concerns, but both equities and bonds look attractive, albeit with significant valuation risk.
MFS PERSPECTIVE
1 |
2 |
3 |
4 |
We are waiting for more clarity around tariffs and fiscal policy in the US and their potential effects on earnings. Interestingly, the S&P 500 is trading at the same P/E multiple (23x) as in early 2022 before multiples crashed due to Fed tightening. |
Equity sentiment in the US has been buoyed by the likelihood of a budget reconciliation bill being signed into law, talk of additional trade deals being close to the finish line and the potential for Fed easing in the second half of the year. |
The FOMC is still in wait-and-see mode, with two rate cuts priced in for the remainder of the year. They will be poring over the latest employment, inflation and housing data, looking for clarity on tariff impacts before their lateJuly meeting. |
Spreads are rich but could remain well behaved unless we see a slowdown. While it’s likely we’ll see a few Fed cuts and some curve steepening, rates shouldn’t be the primary driver. We believe coupons will drive fixed income returns for the remainder of the year. |
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 are not limited to, macro-economic data, valuations, fundamentals and technical variables.
US Equity
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
|
MFS CONSIDERATIONS |
LARGE CAP |
- A strong rebound in semiconductor stocks has powered the equity rally.
- Large-cap names continue to dominate and drive index performance.
- Valuations across multiple metrics remain near long-term highs while the market climbs a wall of worry.
- We remain cautious ahead of policy impacts on earnings.
SMALL/MID CAP |
- Elevated inflation and interest rates remain a headwind for SMID as earnings growth remains meager.
- Valuations are supportive and improving productivity and ongoing deregulation may drive earnings improvement.
- We favor midcaps over small caps given their lower financial leverage and stronger profit margins.
GROWTH |
- Growth rebounded, led by technology and non-regulated utilities.
- Increasing dispersion within the Magnificent Seven improves the opportunities for active managers.
- The outlook for large-cap technology, whose valuations look extended, will drive the performance of growth stocks.
VALUE |
- Value’s deep discount to growth provides a healthy valuation cushion and offers diversification from concentrated technology-driven indices.
- These stocks are well positioned to benefit from the proposed One Big Beautiful Bill tax changes for capex and R&D.
International Equity
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
BLANK
DEVELOPED INTERNATIONAL EQUITY |
- Despite recent events, falling energy prices are a boost to European, UK and Japanese profit margins.
- US dollar weakness is expected to continue providing a tailwind for US holders of foreign shares.
- Trade uncertainty remains a source of potential volatility.
MFS CONSIDERATIONS |
- Europe is coming off a very low base with falling rates and lower inflation. There is evidence of green shoots in the economic data, which, coupled with fiscal expansion, is structurally positive
- Despite the recent rally, momentum remains positive and European valuations are undemanding.
- Japan continues to benefit from ongoing structural improvements and positive earnings revisions.
- We remain positive on the outlook for both Europe and Japan
EMERGING MARKET EQUITY |
- A weaker USD is generally positive for emerging markets, but this is tempered by trade uncertainty.
- The outlook for Latin America continues to recover on the back of greater political stability and improving fundamentals.
- Southeast Asia should continue to benefit from ongoing demand for tech hardware and semiconductors.
MFS CONSIDERATIONS |
- Caution among China’s consumers remains a concern and further stimulus may be needed to boost local consumption while manufacturing and industrial capacity utilization cools.
- Tariffs remain a worry as slowing global growth and trade is typically a drag on emerging markets.
- Real policy rates remain high and further easing would be supportive for earnings, particularly for Latam countries.
BLANK
Fixed Income
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
DURATION |
- The macro drivers of duration have been mixed with downside risks to growth counterbalanced by renewed inflation fears.
- While rate volatility has normalized from April’s peak, policy uncertainty and US Treasury technicals appear to have worsened.
MFS CONSIDERATIONS |
- Caution towards duration is warranted in view of the challenging macro, policy and technical backdrop.
- The yield curve is likely to steepen further, which will help support the relative attractiveness of the long end.
MUNICIPALS |
- Fundamentals, including state finances, remain adequate while the valuation backdrop looks favorable.
MFS CONSIDERATIONS |
- Given their low credit risk and favorable tax treatment, we think municipals could represent a great alternative to cash.
SECURITIZED (MBS) |
- The agency MBS outlook remains broadly positive, reflecting improved fundamentals and a sound technical backdrop, but higher rate volatility could act as a headwind.
- A combination of more compelling relative valuations, along with a return of institutional buyers to the market, could support MBS.
MFS CONSIDERATIONS |
- Agency MBS offer diversification and defensive benefits as well as attractive spreads over Treasuries. With improving valuations and technicals, a favorable stance appears appropriate.
US INV-GRADE CORP |
- The macro backdrop should remain supportive, despite the policy uncertainty. Spreads have tightened from April’s wides and look stretched again, putting a premium on credit selection.
- We expect market volatility to remain high, but US IG can remain resilient as long as a recession is averted.
MFS CONSIDERATIONS |
- We are neutral given that tight spreads are balanced by a supportive macro backdrop.
- Looking ahead, expected returns are likely to remain adequate, mainly driven by the attractive carry.
US HIGH YIELD |
- Fundamentals remain solid, helped by a historically low level of leverage and strong earnings.
- However, in a potentially higher credit risk environment, driven by policy uncertainty, technicals are likely to be challenged while historically rich valuations cheapen.
MFS CONSIDERATIONS |
- We believe that the risk/reward for total returns is still favorable, but its relative value proposition has declined.
- Security selection remains critical. In a heightened credit risk environment, this asset class may not be for everyone.
EMERGING MARKET DEBT |
- The geopolitical backdrop has worsened considerably, constituting a major headwind for EM. In addition, fundamentals have deteriorated somewhat.
- On the positive side, valuations remain adequate and technicals are supportive, with many investors seen as underinvested.
MFS CONSIDERATIONS |
- We have turned more cautious as EM is exposed to global risks, including the impact of tariffs, geopolitics and downside risks to global growth.
- There are still attractive opportunities within EM, but sovereign credit selection is paramount.
BLANK
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.
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.
Unless otherwise indicated, logos and product and service names are trademarks of MFS® and its affiliates and may be registered in certain countries.