decorative
decorative

February 2025

Global Market Pulse (USD)

Leveraging expertise from the MFS Market Insights team to provide timely perspectives on economic and market dynamics that are top of mind for clients.

Print

Market Insights Team

 

KEY TAKEAWAYS

  • A less burdensome regulatory environment and the potential for lower taxes are two reasons for surging US small business optimism. 
  • We’re entering a period of central bank bifurcation as the direction, pace and degree of policy rate decisions could vary greatly, offering opportunities in sovereign bond selection. 
  • While Chinese policy makers have cut interest rates and announced stimulus plans, consumers and businesses likely need a significant fiscal boost to stem the tide of slowing credit growth and domestic demand. 
  • In fixed income, European duration and credit remain more attractive than in the US while value and midcap seem well positioned in US equities.

   

  • Economy & Markets

    Economy & Markets

    | US Small Business Optimism 

    US SMID-cap companies could benefit the most from policy shifts.

    MFS PERSPECTIVE

    • Small-business optimism soared after Trump’s election amid expectations of a less onerous regulatory environment. 
    • Medium-sized firms bear the highest regulatory cost burden and could benefit the most.
    • Prospects for steady, or even lower, corporate taxes are also supportive.

     

     

    | Monetary Policy

    Global monetary policy is becoming unsynchronized

    MFS PERSPECTIVE

    • While the Fed has turned cautious, the ECB remains committed to easing steadily. 
    • This divergence has significant implications for global markets, including relative value, duration positioning and currency moves. 
    • As a result, we are more constructive on EUR duration. 

     

     

    | European Sentiment

    Slowing growth, political division and the prospect of US tariffs hurt.

    MFS PERSPECTIVE

    • Sentiment has downshifted in the post-pandemic period and recently fell to its lowest level since the sovereign debt crisis.
    • Political instability in Germany and France are contributing to the negative mood. 
    • Amid poor sentiment, even a modestly improved outlook could have outsized positive impact.

     

     

    | Chinese Economy

    Constrained credit one of many economic headwinds

    MFS PERSPECTIVE

    • Structural reforms are needed to address the troubled property sector, local government debt, deflationary risks and industrial overcapacity. 
    • Financing constraints are an impediment to domestic demand and private consumption. 
    • We remain cautious but believe selective investment opportunities can be found.

  • US Equity
    USD based

     

     

    US
    decorative

     

     

    • UNDERWEIGHT     • NEUTRAL     • OVERWEIGHT

    • Expectations for pro-growth policies such as lower corporate taxes and a lighter regulatory burden have driven the latest multiple expansion. 
    • While valuations remain above long-term averages, earnings have been strong, the Fed is set to ease a bit further and recession signs are scant. 
    • We see opportunity in midcaps and value stocks. 
    • However, we’re mindful of potential volatility from looming tariff threats.

     

    MFS CONSIDERATIONS
    LARGE CAP
    • Most of the Mag 7 continue to top the list of earning contributors to the S&P 500, but interestingly, none are in the top 75 total returning stocks YTD. 
    • The earnings and profitability outlooks remain strong for large caps, with financials reporting outsized profits. 
    • The biggest risk to the large-cap story remains extended valuations.
    SMALL/MID CAP
    • Midcaps have outperformed large and small caps so far YTD. 
    • Expectations for a lighter regulatory burden are supportive, as midcaps bear the highest regulatory costs per employee. 
    • The NTM P/E ratio for the Russell Midcap® Index (17x) looks attractive and is cheaper than its 5- and 10-year averages, and in line with longer-term averages.

     

    GROWTH
    • While the recent DeepSeek news raised uncertainty around US mega cap tech names that dominate the Russell 1000 Growth Index®, these companies have enviable business models, income statements and balance sheets. 
    • However, when you compare the current NTM P/E to averages over the last 10 to 25 years, you are faced with 25% to 50% premiums.
    VALUE
    • Over the past month, large value stocks have outperformed their growth peers as Russell 1000® Value Index-heavy sectors such as energy, industrials and financials have outperformed, while the growth linked technology sector is the worst performing. 
    • Nearshoring, electrification and Trump 2.0 are all supportive themes for value stocks. 

  • Global Developed Equity - Ex US
    USD based

    EUROPE EX UK
    • Core Europe continues to struggle, driven by weak sentiment and political uncertainty.
    • Valuations look reasonable and reflect the pessimistic outlook while the earnings outlook is decent. 
    • Tariff impacts are seen as limited. 
       
    M F S   C O N S I D E R A T I O N S
    • We expect German industrial production to continue to struggle in the face of stiff Chinese competition. 
    • Potential catalysts for European re-rating include a Ukrainian peace deal, German fiscal stimulus and improving Chinese consumption. 
    UK
    • Rising yields have not been driven by growth but by inflation and fiscal doubts. 
    • The weak pound has been a tailwind for FTSE 100 earnings, less so for small- and midcaps. 
    • Slow growth and easing inflation could spur further rate cuts.
    M F S   C O N S I D E R A T I O N S
    • A commitment to fiscal tightening from the UK government could see rate-sensitive sectors perform well. 
    • Consumer confidence remains low, but falling rates could improve consumption.
    JAPAN
    • Domestic demand remains strong on the back of rising wages. 
    • Equity markets are likely to respond to the changing trajectory of rates. 
    • High cash balances, small payout ratios and low equity allocations provide room to equitize. 
    M F S   C O N S I D E R A T I O N S
    • BOJ policy normalization could be a risk if rates rise faster than expected. 
    • Regulators continue to drive corporate reform, supporting shareholders.

  • Emerging Markets
    USD based

    EM EQUITY
    • USD strength is expected to be an ongoing headwind, along with rising trade tensions. 
    • China’s stimulus measures have stabilized markets. However, uncertainty remains about their economic impact, amid concerns that tariffs could further weaken the manufacturing sector.
    M F S   C O N S I D E R A T I O N S
    • Against an uncertain international backdrop, selectivity is important. 
    • Valuations remain undemanding, and further Chinese stimulus should be supportive for SE Asia. 
    • Uncertainty is likely to continue until the tariff picture becomes clear
    EM DEBT - HARD CURRENCY
    • Fundamentals have deteriorated recently, mainly reflecting higher fiscal risks, but technicals remain robust. 
    • The valuation backdrop remains favorable on a total-yield basis, despite tight spreads.

       
    M F S   C O N S I D E R A T I O N S
    • EM debt has shown remarkable resilience since the US election, contrary to initial concerns. 
    • With total yield valuation still compelling, EMD remains attractive 
    • Given significant risks, country selection will be key.
    EM DEBT - LOCAL CURRENCY
    • The stronger outlook for the USD under Trump 2.0 presents a major challenge. 
    • Global policy easing, disinflation and high real rates all act as positive drivers. 
    • Sensitivity to global factors will require close monitoring. 
       
    M F S   C O N S I D E R A T I O N S
    • A more tactical asset class by nature, given the higher volatility involved, it may continue to be vulnerable to a tougher global backdrop. 
    • Until we are comfortable that the strong dollar run is over, we will maintain a cautious bias.

    BLANK

  • Global Fixed Income
    USD based

    • UNDERWEIGHT     • NEUTRAL     • OVERWEIGHT

    USD DURATION
    • Disinflation uncertainty, resilient economic growth and the potential inflationary effects of Trump 2.0 may limit the room for future Fed rate cuts, reducing duration’s appeal. 
    • Major deterioration in the labor market may demand further Fed action, but that’s not our base case.
    MFS CONSIDERATIONS
    • Rate risks are no longer skewed to the downside. 
    • While Fed market pricing may appear too conservative, we have moved to a neutral duration stance, reflecting renewed inflation concerns.
    EURO DURATION*
    • Amid ongoing ECB rate cuts, a moderating inflation trajectory and a challenging growth backdrop, the stars appear aligned for long duration in the eurozone. 
    • Core eurozone economies face major growth headwinds, both in Germany and in France. 
    M F S   C O N S I D E R A T I O N S
    • With the balance of risks skewed towards accelerated ECB policy easing, the case for long duration is compelling.
    US IG CORP
    • Amid a probable soft landing, the macro backdrop remains positive. Fundamentals remain strong after recent margin and free cash flow improvements. 
    • However, spread valuations remain challenging, making IG less attractive than other sectors.
    M F S   C O N S I D E R A T I O N S
    • While the outlook for total returns remains constructive, the risk/reward is not as compelling as for other asset classes, mainly reflecting tight valuation, which keeps us cautious. 
    US HIGH YIELD
    • Fundamentals remain robust, helped by historically low levels of leverage and strong free cash flow generation. 
    • Other positive drivers include low default rate projections, attractive breakeven yield valuation and a supportive macro outlook.
       
    M F S   C O N S I D E R A T I O N S
    • The risk/reward may be attractive for investors who may consider deploying credit risk exposure. 
    • While we are not concerned about the maturity wall, spread valuation looks stretched, so security selection is key.
    EURO IG CORP
    • Sound fundamentals, a friendly macro environment and robust technicals are supportive. 
    • The ECB easing cycle is likely to boost investor sentiment. 
    • While the spread valuation backdrop has become more challenging, it’s cheaper than in the US.
    M F S   C O N S I D E R A T I O N S
    • Based on our assessment of fundamentals, valuation and technicals, we believe this is one of the most attractive opportunities across global fixed income.
    EURO HIGH YIELD
    • The macro backdrop and strong fundamentals, including favorable net leverage, are supportive. 
    • Breakeven yields remain attractive. 
    • Appetite for riskier assets in the region is likely to benefit from the ongoing ECB easing cycle.
    M F S   C O N S I D E R A T I O N S
    • The asset class has shown resilience and remains attractive for the investor with high risk tolerance. 
    • Security selection remains key, given the dispersion of fundamental stories at the security level. 

Economy & Markets

| US Small Business Optimism 

US SMID-cap companies could benefit the most from policy shifts.

MFS PERSPECTIVE

  • Small-business optimism soared after Trump’s election amid expectations of a less onerous regulatory environment. 
  • Medium-sized firms bear the highest regulatory cost burden and could benefit the most.
  • Prospects for steady, or even lower, corporate taxes are also supportive.

 

 

| Monetary Policy

Global monetary policy is becoming unsynchronized

MFS PERSPECTIVE

  • While the Fed has turned cautious, the ECB remains committed to easing steadily. 
  • This divergence has significant implications for global markets, including relative value, duration positioning and currency moves. 
  • As a result, we are more constructive on EUR duration. 

 

 

| European Sentiment

Slowing growth, political division and the prospect of US tariffs hurt.

MFS PERSPECTIVE

  • Sentiment has downshifted in the post-pandemic period and recently fell to its lowest level since the sovereign debt crisis.
  • Political instability in Germany and France are contributing to the negative mood. 
  • Amid poor sentiment, even a modestly improved outlook could have outsized positive impact.

 

 

| Chinese Economy

Constrained credit one of many economic headwinds

MFS PERSPECTIVE

  • Structural reforms are needed to address the troubled property sector, local government debt, deflationary risks and industrial overcapacity. 
  • Financing constraints are an impediment to domestic demand and private consumption. 
  • We remain cautious but believe selective investment opportunities can be found.

US Equity
USD based

 

 

US
decorative

 

 

• UNDERWEIGHT     • NEUTRAL     • OVERWEIGHT

  • Expectations for pro-growth policies such as lower corporate taxes and a lighter regulatory burden have driven the latest multiple expansion. 
  • While valuations remain above long-term averages, earnings have been strong, the Fed is set to ease a bit further and recession signs are scant. 
  • We see opportunity in midcaps and value stocks. 
  • However, we’re mindful of potential volatility from looming tariff threats.

 

MFS CONSIDERATIONS
LARGE CAP
  • Most of the Mag 7 continue to top the list of earning contributors to the S&P 500, but interestingly, none are in the top 75 total returning stocks YTD. 
  • The earnings and profitability outlooks remain strong for large caps, with financials reporting outsized profits. 
  • The biggest risk to the large-cap story remains extended valuations.
SMALL/MID CAP
  • Midcaps have outperformed large and small caps so far YTD. 
  • Expectations for a lighter regulatory burden are supportive, as midcaps bear the highest regulatory costs per employee. 
  • The NTM P/E ratio for the Russell Midcap® Index (17x) looks attractive and is cheaper than its 5- and 10-year averages, and in line with longer-term averages.

 

GROWTH
  • While the recent DeepSeek news raised uncertainty around US mega cap tech names that dominate the Russell 1000 Growth Index®, these companies have enviable business models, income statements and balance sheets. 
  • However, when you compare the current NTM P/E to averages over the last 10 to 25 years, you are faced with 25% to 50% premiums.
VALUE
  • Over the past month, large value stocks have outperformed their growth peers as Russell 1000® Value Index-heavy sectors such as energy, industrials and financials have outperformed, while the growth linked technology sector is the worst performing. 
  • Nearshoring, electrification and Trump 2.0 are all supportive themes for value stocks. 

Global Developed Equity - Ex US
USD based

EUROPE EX UK
  • Core Europe continues to struggle, driven by weak sentiment and political uncertainty.
  • Valuations look reasonable and reflect the pessimistic outlook while the earnings outlook is decent. 
  • Tariff impacts are seen as limited. 
     
M F S   C O N S I D E R A T I O N S
  • We expect German industrial production to continue to struggle in the face of stiff Chinese competition. 
  • Potential catalysts for European re-rating include a Ukrainian peace deal, German fiscal stimulus and improving Chinese consumption. 
UK
  • Rising yields have not been driven by growth but by inflation and fiscal doubts. 
  • The weak pound has been a tailwind for FTSE 100 earnings, less so for small- and midcaps. 
  • Slow growth and easing inflation could spur further rate cuts.
M F S   C O N S I D E R A T I O N S
  • A commitment to fiscal tightening from the UK government could see rate-sensitive sectors perform well. 
  • Consumer confidence remains low, but falling rates could improve consumption.
JAPAN
  • Domestic demand remains strong on the back of rising wages. 
  • Equity markets are likely to respond to the changing trajectory of rates. 
  • High cash balances, small payout ratios and low equity allocations provide room to equitize. 
M F S   C O N S I D E R A T I O N S
  • BOJ policy normalization could be a risk if rates rise faster than expected. 
  • Regulators continue to drive corporate reform, supporting shareholders.

Emerging Markets
USD based

EM EQUITY
  • USD strength is expected to be an ongoing headwind, along with rising trade tensions. 
  • China’s stimulus measures have stabilized markets. However, uncertainty remains about their economic impact, amid concerns that tariffs could further weaken the manufacturing sector.
M F S   C O N S I D E R A T I O N S
  • Against an uncertain international backdrop, selectivity is important. 
  • Valuations remain undemanding, and further Chinese stimulus should be supportive for SE Asia. 
  • Uncertainty is likely to continue until the tariff picture becomes clear
EM DEBT - HARD CURRENCY
  • Fundamentals have deteriorated recently, mainly reflecting higher fiscal risks, but technicals remain robust. 
  • The valuation backdrop remains favorable on a total-yield basis, despite tight spreads.

     
M F S   C O N S I D E R A T I O N S
  • EM debt has shown remarkable resilience since the US election, contrary to initial concerns. 
  • With total yield valuation still compelling, EMD remains attractive 
  • Given significant risks, country selection will be key.
EM DEBT - LOCAL CURRENCY
  • The stronger outlook for the USD under Trump 2.0 presents a major challenge. 
  • Global policy easing, disinflation and high real rates all act as positive drivers. 
  • Sensitivity to global factors will require close monitoring. 
     
M F S   C O N S I D E R A T I O N S
  • A more tactical asset class by nature, given the higher volatility involved, it may continue to be vulnerable to a tougher global backdrop. 
  • Until we are comfortable that the strong dollar run is over, we will maintain a cautious bias.

BLANK

Global Fixed Income
USD based

• UNDERWEIGHT     • NEUTRAL     • OVERWEIGHT

USD DURATION
  • Disinflation uncertainty, resilient economic growth and the potential inflationary effects of Trump 2.0 may limit the room for future Fed rate cuts, reducing duration’s appeal. 
  • Major deterioration in the labor market may demand further Fed action, but that’s not our base case.
MFS CONSIDERATIONS
  • Rate risks are no longer skewed to the downside. 
  • While Fed market pricing may appear too conservative, we have moved to a neutral duration stance, reflecting renewed inflation concerns.
EURO DURATION*
  • Amid ongoing ECB rate cuts, a moderating inflation trajectory and a challenging growth backdrop, the stars appear aligned for long duration in the eurozone. 
  • Core eurozone economies face major growth headwinds, both in Germany and in France. 
M F S   C O N S I D E R A T I O N S
  • With the balance of risks skewed towards accelerated ECB policy easing, the case for long duration is compelling.
US IG CORP
  • Amid a probable soft landing, the macro backdrop remains positive. Fundamentals remain strong after recent margin and free cash flow improvements. 
  • However, spread valuations remain challenging, making IG less attractive than other sectors.
M F S   C O N S I D E R A T I O N S
  • While the outlook for total returns remains constructive, the risk/reward is not as compelling as for other asset classes, mainly reflecting tight valuation, which keeps us cautious. 
US HIGH YIELD
  • Fundamentals remain robust, helped by historically low levels of leverage and strong free cash flow generation. 
  • Other positive drivers include low default rate projections, attractive breakeven yield valuation and a supportive macro outlook.
     
M F S   C O N S I D E R A T I O N S
  • The risk/reward may be attractive for investors who may consider deploying credit risk exposure. 
  • While we are not concerned about the maturity wall, spread valuation looks stretched, so security selection is key.
EURO IG CORP
  • Sound fundamentals, a friendly macro environment and robust technicals are supportive. 
  • The ECB easing cycle is likely to boost investor sentiment. 
  • While the spread valuation backdrop has become more challenging, it’s cheaper than in the US.
M F S   C O N S I D E R A T I O N S
  • Based on our assessment of fundamentals, valuation and technicals, we believe this is one of the most attractive opportunities across global fixed income.
EURO HIGH YIELD
  • The macro backdrop and strong fundamentals, including favorable net leverage, are supportive. 
  • Breakeven yields remain attractive. 
  • Appetite for riskier assets in the region is likely to benefit from the ongoing ECB easing cycle.
M F S   C O N S I D E R A T I O N S
  • The asset class has shown resilience and remains attractive for the investor with high risk tolerance. 
  • 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.

The Global 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.

58442.5
close video