November 2024
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.
AUTHORS
Benoit Anne
Managing Director
Investment Solutions Group
Jonathan Hubbard, CFA
Managing Director
Investment Solutions Group
Brad Rutan, CFA
Managing Director
Investment Solutions Group
KEY TAKEAWAYS
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Economy & Markets
Economy & Markets
| US PRODUCTIVITY
Improved productivity points to stronger economic growth ahead MFS PERSPECTIVE
- US productivity, measured as output per employee, is a component of future economic growth.
- Since 2020, productivity has spiked amid a surge in new business creation, contributing to higher wages and improved living standards.
- Improving productivity tends to reduce the risk of higher inflation.
| REAL INCOME
Rising real income reinforces the case for a soft landing MFS PERSPECTIVE
- Historically, higher real income levels have been supportive of greater consumption.
- The rebound in real income since 2023 should continue to support consumer spending.
| HOUSING MARKET
Housing affordability has yet to recover MFS PERSPECTIVE
- While the Fed has kicked off its easing cycle, housing affordability is showing no signs of improvement.
- Long-end rates have not corrected lower and mortgage rates remain elevated, leading to soft home sales. Meanwhile, house prices remain firm, mainly reflecting a supply shortage.
| US EQUITY
The market is broadening out beyond technology and AI MFS PERSPECTIVE
- The start of the rate-cutting cycle has driven a rotation towards rate-sensitive sectors while continued economic strength supports undervalued cyclicals.
- The breadth of the rally reflects improved market health.
- Fading dominance of the mega-caps and the return of breadth should be a tailwind for active investors.
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Asset Allocation
Asset Allocation
A slight improvement in the equity outlook combined with a modest deterioration in the attractiveness of duration leads us to a neutral asset allocation compared with an investor’s strategic allocation.
MFS PERSPECTIVE
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Earnings remain decent and economic data still supports a soft landing. While equities could extend their gains through year-end, valuations remain concerning and tech-heavy concentration, albeit lower today, limits equity optimism.
Despite stubborn concentration risk, market breadth is expanding, and prospects are improving for value-leaning sectors such as financials, where a steeper yield curve supports net interest margins.
Given the election results, duration is somewhat less attractive amid the prospect of higher rate volatility, stronger inflation and fewer Fed cuts. Most fixed income asset classes offer high all-in yields while spreads remain very tight, though they could remain tight for some time.
The biggest risk to equities and bonds could be an inflation revival linked to increased tariffs and the potential for rising longer-term rates.
Approach and methodology: The MFS 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 extended their rally after the US presidential election amid hopes for lower corporate taxes, a lighter regulatory burden and other pro-growth policies. A quarter-point rate cut from the Fed on 7 November contributed.
- November through January has historically been a strong period for equity performance and current conditions appear supportive.
- While valuations remain well above their long-term averages and concentration remains a risk, secular support for equities, such as earnings beats and investor inflows, remains intact.
- While the outlook for US equities is largely positive, we remain selective due to market concentration and, at an index level, elevated valuations.
MFS CONSIDERATIONS LARGE CAP - S&P 500 valuations remain elevated at over 21 times next-twelve months earnings and a price-to-sales ratio of 3x.
- Earnings growth remains healthy at 5% for the quarter, the fifth consecutive quarter of growth, according to FactSet.
- The potential for new trade barriers pose a significant risk through higher costs and the risk of retaliatory tariffs.
SMALL/MID CAP - The recent rally in small caps has elevated the PE ratio to 24 times NTM earnings, but economic and policy developments are supportive.
- Small caps are becoming more appealing as sustained positive economic data and strength in the services sector point to a soft, or no, landing.
- As the Fed’s rate cutting cycle continues, small caps should benefit from a lower cost of capital.
GROWTH - Growth continues to lead the market higher, rising more than 26% on the year through early November.
- Telecommunications, utilities and IT are all up more than 30% year to date, with every sector in positive territory.
- With high expectations reflected in multiples, investors may want to be increasingly discerning, considering the Russell 1000 Growth’s® lofty PE of 28 times NTM earnings.
VALUE - A recent rotation has resulted in strong performance in more value-oriented sectors, including financials, utilities and industrials.
- Healthy consumer finances and lower interest rates should continue to support the financial sector, which is more than 22% of the Russell 1000 Value® index.
- We do not see the same concentration or valuation risk in value-oriented equities that we see in growth-oriented ones.
BLANK
International Equity
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
DEVELOPED INTERNATIONAL EQUITY 
- The eurozone services economy remains robust but German manufacturing and French politics are headwinds to regional growth.
- Domestic politics is driving uncertainty for Japanese equities, but the outlook for earnings remains positive.
M F S C O N S I D E R A T I O N S - Uncertainty over the potential for US tariffs puts further downward pressure on eurozone growth prospects.
- European consumers continue to save. However, the combination of falling rates and steady real wage growth may encourage an uptick in consumption.
BLANK
EMERGING MARKET EQUITY
- Chinese government stimulus takes central stage as we await the details of crucial fiscal measures, though looming US tariffs are a cause for concern.
- There is wide dispersion in the outlook for EM economies, but index heavyweights India and Taiwan continue to perform well.
M F S C O N S I D E R A T I O N S - Renewed USD strength and slowing growth in China are headwinds for many emerging economies. However, valuations remain supportive with a significant dose of earnings pessimism already priced in.
- Successful implementation of Chinese stimulus should help stabilize the world’s second largest economy.
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Fixed Income
Fixed Income
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
DURATION 
- A soft-landing scenario and further Fed easing are supportive of long duration over a 12-month horizon.
- However, in the wake of the election, these positive drivers are offset by fear of rising fiscal policy risks.
M F S C O N S I D E R A T I O N S - After the election, the case for duration has weakened amid higher inflation and fiscal risks.
- The yield curve is likely to steepen further, which would help support the relative attractiveness of the long end.
MUNICIPALS 
- Fundamentals, including state finances, remain adequate while the valuation backdrop looks favorable.
- Technicals, including inflows, have improved considerably in recent months.
M F S C O N S I D E R A T I O N S - Given their low credit risk and their favorable tax treatment, municipals represent a great alternative for the elevated amount of cash still on the sidelines.
SECURITIZED (MBS)
- The MBS outlook remains broadly positive in view of strong fundamentals, but the valuation picture is less compelling relative to its peers.
- In the near term, electionrelated rate volatility may rise, reducing their appeal.
M F S C O N S I D E R A T I O N S - Agencies offer diversification and defensive benefits as well as attractive spreads over Treasuries, but given the valuation and risks, a neutral stance appears appropriate.
BLANK
US INV-GRADE CORP 
- Fundamentals are showing signs of weakening, especially on the fiscal front, while the global backdrop is less supportive.
- The valuation landscape is somewhat challenged, mainly reflecting the impact of stretched spread valuation.
M F S C O N S I D E R A T I O N S - While total yield valuation remains compelling, our cautious stance reflects tight spread and rising risks, including geopolitics, a strong dollar and the potential for higher tariffs.
US HIGH YIELD
- Fundamentals remain solid, helped by low levels of leverage and strong earnings.
- Positive drivers include low default rates, attractive yield valuation and a strong macro outlook. While spread valuation looks rich, we see don't see this as a major risk.
M F S C O N S I D E R A T I O N S - We believe that the risk/ reward for total returns is favorable, especially in relation to other asset classes.
- Security selection will continue to be a critical part of the investment process given the credit risk involved.
EMERGING MARKET DEBT
- Fundamentals have shown increasing signs of weakness, especially on the fiscal front, while the global backdrop has turned less supportive.
- On the positive side, the valuation picture still looks broadly adequate, while technicals appear robust.
M F S C O N S I D E R A T I O N S - While total yield valuation remains compelling, our cautious stance reflects tight spreads and rising risks, including geopolitics, a strong dollar and higher tariffs.
- There are still attractive opportunities within EM, but sovereign credit selection is paramount.
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.
The views expressed herein are those of the MFS Investment Solutions 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.
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.
Economy & Markets
| US PRODUCTIVITY
| Improved productivity points to stronger economic growth ahead |
MFS PERSPECTIVE
|
| REAL INCOME
| Rising real income reinforces the case for a soft landing |
MFS PERSPECTIVE
|
| HOUSING MARKET
| Housing affordability has yet to recover |
MFS PERSPECTIVE
|
| US EQUITY
| The market is broadening out beyond technology and AI |
MFS PERSPECTIVE
|
Asset Allocation
A slight improvement in the equity outlook combined with a modest deterioration in the attractiveness of duration leads us to a neutral asset allocation compared with an investor’s strategic allocation.
MFS PERSPECTIVE
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2 |
3 |
4 |
Earnings remain decent and economic data still supports a soft landing. While equities could extend their gains through year-end, valuations remain concerning and tech-heavy concentration, albeit lower today, limits equity optimism. |
Despite stubborn concentration risk, market breadth is expanding, and prospects are improving for value-leaning sectors such as financials, where a steeper yield curve supports net interest margins. |
Given the election results, duration is somewhat less attractive amid the prospect of higher rate volatility, stronger inflation and fewer Fed cuts. Most fixed income asset classes offer high all-in yields while spreads remain very tight, though they could remain tight for some time. |
The biggest risk to equities and bonds could be an inflation revival linked to increased tariffs and the potential for rising longer-term rates. |
Approach and methodology: The MFS 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
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| MFS CONSIDERATIONS |
| LARGE CAP |
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| SMALL/MID CAP |
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| GROWTH |
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| VALUE |
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BLANK
International Equity
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
| DEVELOPED INTERNATIONAL EQUITY |
- The eurozone services economy remains robust but German manufacturing and French politics are headwinds to regional growth.
- Domestic politics is driving uncertainty for Japanese equities, but the outlook for earnings remains positive.
| M F S C O N S I D E R A T I O N S |
- Uncertainty over the potential for US tariffs puts further downward pressure on eurozone growth prospects.
- European consumers continue to save. However, the combination of falling rates and steady real wage growth may encourage an uptick in consumption.
BLANK
| EMERGING MARKET EQUITY |
- Chinese government stimulus takes central stage as we await the details of crucial fiscal measures, though looming US tariffs are a cause for concern.
- There is wide dispersion in the outlook for EM economies, but index heavyweights India and Taiwan continue to perform well.
| M F S C O N S I D E R A T I O N S |
- Renewed USD strength and slowing growth in China are headwinds for many emerging economies. However, valuations remain supportive with a significant dose of earnings pessimism already priced in.
- Successful implementation of Chinese stimulus should help stabilize the world’s second largest economy.
Fixed Income
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
| DURATION |
- A soft-landing scenario and further Fed easing are supportive of long duration over a 12-month horizon.
- However, in the wake of the election, these positive drivers are offset by fear of rising fiscal policy risks.
| M F S C O N S I D E R A T I O N S |
- After the election, the case for duration has weakened amid higher inflation and fiscal risks.
- The yield curve is likely to steepen further, which would help support the relative attractiveness of the long end.
| MUNICIPALS |
- Fundamentals, including state finances, remain adequate while the valuation backdrop looks favorable.
- Technicals, including inflows, have improved considerably in recent months.
| M F S C O N S I D E R A T I O N S |
- Given their low credit risk and their favorable tax treatment, municipals represent a great alternative for the elevated amount of cash still on the sidelines.
| SECURITIZED (MBS) |
- The MBS outlook remains broadly positive in view of strong fundamentals, but the valuation picture is less compelling relative to its peers.
- In the near term, electionrelated rate volatility may rise, reducing their appeal.
| M F S C O N S I D E R A T I O N S |
- Agencies offer diversification and defensive benefits as well as attractive spreads over Treasuries, but given the valuation and risks, a neutral stance appears appropriate.
BLANK
| US INV-GRADE CORP |
- Fundamentals are showing signs of weakening, especially on the fiscal front, while the global backdrop is less supportive.
- The valuation landscape is somewhat challenged, mainly reflecting the impact of stretched spread valuation.
| M F S C O N S I D E R A T I O N S |
- While total yield valuation remains compelling, our cautious stance reflects tight spread and rising risks, including geopolitics, a strong dollar and the potential for higher tariffs.
| US HIGH YIELD |
- Fundamentals remain solid, helped by low levels of leverage and strong earnings.
- Positive drivers include low default rates, attractive yield valuation and a strong macro outlook. While spread valuation looks rich, we see don't see this as a major risk.
| M F S C O N S I D E R A T I O N S |
- We believe that the risk/ reward for total returns is favorable, especially in relation to other asset classes.
- Security selection will continue to be a critical part of the investment process given the credit risk involved.
| EMERGING MARKET DEBT |
- Fundamentals have shown increasing signs of weakness, especially on the fiscal front, while the global backdrop has turned less supportive.
- On the positive side, the valuation picture still looks broadly adequate, while technicals appear robust.
| M F S C O N S I D E R A T I O N S |
- While total yield valuation remains compelling, our cautious stance reflects tight spreads and rising risks, including geopolitics, a strong dollar and higher tariffs.
- There are still attractive opportunities within EM, but sovereign credit selection is paramount.
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.
The views expressed herein are those of the MFS Investment Solutions 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.
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.
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