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.
Economy & Markets
| Energy markets have proved adaptable |
MFS PERSPECTIVE
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| Opportunities abound beyond megacaps |
MFS PERSPECTIVE
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| European earnings continue to show strength |
MFS PERSPECTIVE
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| A Fed rate hike can no longer be ruled out over the next year |
MFS PERSPECTIVE
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Equity
Assets Class Views
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Fundamentals → |
Earnings Revisions ↑ |
Macro →
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Emerging MarketsThe outlook for emerging markets is constructive: deep valuation discounts provide a strong starting point, structural growth remains superior to developed markets, and EM economies are increasingly leveraged to the global capex and AI cycle, supporting a gradual re-rating as conditions stabilize.
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Non-US DevelopedFull-year earnings expectations for Europe are rising, narrowing the gap with the US. As energy pressures ease, Europe and Japan may benefit the most, given their greater manufacturing exposure and the energy sector’s larger weight in regional indices.
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US Equity
Assets Class Views
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Fundamentals ↑ |
Earnings Revisions → |
Macro →
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Small/Mid-CapEarnings expectations for SMID-cap are improving as the resilient US economy supports revenue growth and stabilizing costs support margins. Despite improving earnings expectations, mid-caps maintain a meaningful valuation discount relative to large caps and may offer greater opportunity for relative outperformance. We continue to favor mid-caps over small caps given their valuation discount and improving EPS expectations.
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GrowthAI-related names have driven market leadership and must now demonstrate that their large investments in infrastructure are justified. Valuations in AI-adjacent names reflect significant future growth and may come under pressure should growth expectations falter.
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Large CapMarket breadth returned in the first quarter with close to half of S&P 500 stocks outperforming the index. Earnings are robust, but valuation and concentration remain risks. We continue to favor large and mid-cap stocks over small-caps.
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ValueThe valuation gap between value and growth has narrowed but remains wide. 2026 earnings estimates have been revised upward year-to-date, supported by the macro backdrop and AI capex spend.
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Fixed Income
Assets Class Views
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Fundamentals ↑ |
Technicals → |
Valuations ↓
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US Investment GradeCorporate 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 Q1. 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 MunicipalsLike Treasuries, municipal valuations have become more attractive, with tax-exempt yields above 3.6%. Fundamentals have benefited from strong growth in state tax receipts, and strong fund flows are helping absorb a wave of heavy issuance.
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US Securitized (MBS)Mortgage yields have risen, while spreads remain historically tight. Technicals were strong, supported by $200B in government sponsored enterprises buying of MBS amid limited issuance. Going forward, technicals may soften while valuations are rich.
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US High YieldGeopolitical uncertainty hurt sentiment as growth fears pushed recent fund flows into negative territory. After early widening, spreads are now tighter than prewar levels. With valuations rich and technicals weak, we favor IG corporates over HY.
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US TreasuriesThe geopolitically driven rise in rates has helped improve the duration backdrop, with US Treasury valuations now more compelling. Technicals remain reasonable as the market’s appetite for dollar assets has rebounded. |
EM DebtDespite some countries being directly impacted by the geopolitical crisis, EM spreads are tighter than pre-conflict levels. Current spreads don’t seem to compensate investors for elevated uncertainty, leaving us cautious on the asset class. |
Industry Flows
Money in motion by Morningstar category
Source: ISS Market Intelligence, Simfund. Q1 2026 is trailing three months from 31 December 2025 to 31 March 2026, Q4 2025 is trailing three months from 30 September 2025 to 31 December 2025.
Source: 1FactSet. Daily data from 31 December 2025 to 30 June 2026. SMIDs = Russell 2500, megacaps = S&P 100. Return is gross and in USD.
2FactSet as of 31 May 2026. Valuation discount = MSCI ACWI ex US Forward P/E divided by S&P 500 minus 1. Forward P/E is next-twelve-months.
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.
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