March 2025
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.
Market Insights Team
KEY TAKEAWAYS
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Economy & Markets
Economy & Markets
| Gold Price
Renewed inflation risks and rising uncertainty MFS PERSPECTIVE
- Gold is thought of as a defensive asset with inflation-hedging characteristics.
- Policy uncertainty, geopolitical risks, fiscal worries, along with central bank purchases, have pushed up gold demand.
- Other ways to enhance inflation protection in portfolios include TIPS, inflation swaps and inflation-friendly sector allocation.
| US Financial Conditions
Financial conditions remain supportive of US growth MFS PERSPECTIVE
- Higher rates and a strong dollar raised fears that the market was tightening for the Fed.
- But that’s not the case. Even though the Fed has turned more cautious, financial conditions remain supportive, helped by recent USD weakness and drop in yields, which is a positive for risky assets.
| US Household Debt
The US consumer remains unleveraged MFS PERSPECTIVE
- While the nominal US household debt balance has continued to rise, reaching a peak of $18 trillion at end-2024, the debt profile of the consumer remains favorable, helped by strong economic growth.
- There is plenty of room for the consumer to take on more debt, if needed.
- Consumer health is a positive for the macro outlook.
| Information Technology
Time to rethink our approach to Artificial Intelligence MFS PERSPECTIVE
- Many companies are downsizing their IT workforces while ramping up investment in AI.
- AI advances have reduced the need for coders and is likely to lead to improvements in productivity and efficiency.
- Security selection will be crucial in sorting out AI winners and losers.
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Asset Allocation
Asset Allocation
Rotation and increased breadth in equities are certainly positive developments, although concentration cuts both ways at the index level, as we have seen this year. Rates seem range bound and spreads remain well behaved, supporting fixed income.
MFS PERSPECTIVE
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2
3
4
Lofty valuations and expectations for US tech stocks continue to weigh on S&P 500 returns YTD. Increased breadth and strong gains in defensive sectors such as health care, staples and utilities continue to support value over growth.
Defensive sectors have outperformed cyclicals as investors price in economic growth fears, as evidenced by lower rates. This year, the path of GDP growth and equity sector leadership will likely hinge on volatile trade, regulatory, monetary and fiscal policy.
For bonds, the pain from 2022 continues to manifest in high all-in yields today. Absent a 2025 recession, bond spreads could remain at or near their current rich levels for an extended period.
If bond spreads hold steady, the greatest risk to the outlook would be rising inflation expectations (and subsequently, interest rates) sparked by pro-growth Trump 2.0 policies. This has yet to be priced into bond markets.
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
- Valuations remain above long-term averages, but earnings are strong and growth firm.
- Sticky inflation and policy uncertainty are likely to limit further multiple expansion.
- Index performance will continue to be driven by the Magnificent Seven, but their earnings growth rates are slowing while capital intensity is rising.
- We expect earnings, not multiple expansion, to drive performance from here.
MFS CONSIDERATIONS LARGE CAP - Valuations remain the biggest risk to large cap.
- Solid earnings growth remains supportive.
- A firm growth outlook should continue to support breadth as well as cyclicals such as financials and industrials. If growth stalls, defensive sectors could continue their YTD leadership.
SMALL/MID CAP - Policy uncertainty and inflation/rates concerns are keeping the market focused on large over small.
- However, lower tax and regulatory burdens remain in play as a potential boost to SMID earnings.
- SMID valuations remain undemanding. Ongoing economic strength and uptick in PMIs are tailwinds.
GROWTH - Mag 7 underperformance has been a drag on growth returns.
- DeepSeek has caused a recalibration of views and shifted expectations on AI-related ROIs and multiples.
- Mega-cap tech remain great businesses, with strong cash flows, balance sheets and earnings, but may be digesting very elevated expectations.
VALUE - Value stocks continue to do well on the back of economic growth driving industrials and financials higher.
- Successful implementation of Trump’s policy agenda should be beneficial for value.
- Investors should remain focused on value and not price.
BLANK
International Equity
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
DEVELOPED INTERNATIONAL EQUITY 
- Europe is outperforming despite political uncertainty and a slower growth outlook. Valuations look reasonable.
- Japanese domestic demand growth remains strong amid reflation and structural reform.
M F S C O N S I D E R A T I O N S - Potential catalysts for European re-rating include a Ukrainian peace deal, fiscal stimulus and improving Chinese consumption. Unemployment remains low, real wages strong and rates are falling. The dollar may not be as strong a headwind from current levels.
- Trump is forcing Europe to reassess multiple issues ranging from defense, to trade, to lagging productivity.
- Faster-than- expected BOJ policy normalization could be a risk if rates rise faster than expected.
BLANK
EMERGING MARKET EQUITY 
- USD strength is expected to be an ongoing headwind, along with rising trade tensions
- China’s stimulus measures have helped boost markets, AI developments have propelled China’s tech sector, but real estate woes persist.
M F S C O N S I D E R A T I O N S - Against an uncertain international backdrop and large disparities between countries, selectivity is especially important.
- Valuations remain undemanding and further Chinese stimulus could be supportive, but deflationary and tariff headwinds remain.
- North Asia is facing a semiconductor slowdown.
- US manufacturing recovery should be supportive for EM ex China.
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Fixed Income
Fixed Income
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
DURATION 
- The recent resurgence in inflation has muddied the outlook for rate cuts, creating a less supportive environment for duration.
- There is a risk that rate volatility may rise because of Trump 2.0 policies and the more cautious monetary policy stance.
M F S C O N S I D E R A T I O N S - After recent cautious signals from the Fed, the case for duration has weakened, hence our neutral bias.
- 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.
- However, one risk to watch for is potential federal tax cuts which could undermine the tax advantages of munis.
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 to cash.
SECURITIZED (MBS)
- The outlook for agency MBS remains broadly positive in view of recovering fundamentals and an improving technical backdrop.
- A combination of more compelling relative valuations along with a return of institutional buyers to the marketplace could support MBS.
M F S C O N S I D E R A T I O N S - Agency MBS offer diversification and defensive benefits as well as attractive spreads over Treasuries. With improving valuations and technicals, a favorable stance appears appropriate.
BLANK
US INV-GRADE CORP 
- The macro environment remains positive for credit, and the fundamental backdrop is satisfactory.
- However, the valuation landscape is challenged, mainly reflecting the impact of rich spread valuation.
M F S C O N S I D E R A T I O N S - We have turned more cautious towards IG, mainly owing to the historically low spread level. Nevertheless, expected returns are likely to remain robust from attractive carry.
US HIGH YIELD
- Fundamentals remain solid, helped by historically low levels of leverage and strong earnings.
- Other positive drivers include low projected default rates, 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 - We believe that the risk/ reward for US HY total returns is favorable, especially in relation to other asset classes.
- With HY, security selection remains a critical part of the investment process, given the credit risk involved.
EMERGING MARKET DEBT
- While the threat of tariffs looms large, we believe robust fundamentals and flexible EM currency regimes should help offset some of their adverse impact.
- On the positive side, the technical backdrop is supportive, with many investors appearing to be underinvested in EM.
M F S C O N S I D E R A T I O N S - While total yield valuation remains compelling, country spreads are tight and EM remains exposed to global risks, including geopolitics.
- 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.
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
| Gold Price
| Renewed inflation risks and rising uncertainty |
MFS PERSPECTIVE
|
| US Financial Conditions
| Financial conditions remain supportive of US growth |
MFS PERSPECTIVE
|
| US Household Debt
| The US consumer remains unleveraged |
MFS PERSPECTIVE
|
| Information Technology
| Time to rethink our approach to Artificial Intelligence |
MFS PERSPECTIVE
|
Asset Allocation
Rotation and increased breadth in equities are certainly positive developments, although concentration cuts both ways at the index level, as we have seen this year. Rates seem range bound and spreads remain well behaved, supporting fixed income.
MFS PERSPECTIVE
1 |
2 |
3 |
4 |
Lofty valuations and expectations for US tech stocks continue to weigh on S&P 500 returns YTD. Increased breadth and strong gains in defensive sectors such as health care, staples and utilities continue to support value over growth. |
Defensive sectors have outperformed cyclicals as investors price in economic growth fears, as evidenced by lower rates. This year, the path of GDP growth and equity sector leadership will likely hinge on volatile trade, regulatory, monetary and fiscal policy. |
For bonds, the pain from 2022 continues to manifest in high all-in yields today. Absent a 2025 recession, bond spreads could remain at or near their current rich levels for an extended period. |
If bond spreads hold steady, the greatest risk to the outlook would be rising inflation expectations (and subsequently, interest rates) sparked by pro-growth Trump 2.0 policies. This has yet to be priced into bond markets. |
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
|
| MFS CONSIDERATIONS |
| LARGE CAP |
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| SMALL/MID CAP |
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| GROWTH |
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| VALUE |
|
BLANK
International Equity
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
| DEVELOPED INTERNATIONAL EQUITY |
- Europe is outperforming despite political uncertainty and a slower growth outlook. Valuations look reasonable.
- Japanese domestic demand growth remains strong amid reflation and structural reform.
| M F S C O N S I D E R A T I O N S |
- Potential catalysts for European re-rating include a Ukrainian peace deal, fiscal stimulus and improving Chinese consumption. Unemployment remains low, real wages strong and rates are falling. The dollar may not be as strong a headwind from current levels.
- Trump is forcing Europe to reassess multiple issues ranging from defense, to trade, to lagging productivity.
- Faster-than- expected BOJ policy normalization could be a risk if rates rise faster than expected.
BLANK
| EMERGING MARKET EQUITY |
- USD strength is expected to be an ongoing headwind, along with rising trade tensions
- China’s stimulus measures have helped boost markets, AI developments have propelled China’s tech sector, but real estate woes persist.
| M F S C O N S I D E R A T I O N S |
- Against an uncertain international backdrop and large disparities between countries, selectivity is especially important.
- Valuations remain undemanding and further Chinese stimulus could be supportive, but deflationary and tariff headwinds remain.
- North Asia is facing a semiconductor slowdown.
- US manufacturing recovery should be supportive for EM ex China.
Fixed Income
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
| DURATION |
- The recent resurgence in inflation has muddied the outlook for rate cuts, creating a less supportive environment for duration.
- There is a risk that rate volatility may rise because of Trump 2.0 policies and the more cautious monetary policy stance.
| M F S C O N S I D E R A T I O N S |
- After recent cautious signals from the Fed, the case for duration has weakened, hence our neutral bias.
- 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.
- However, one risk to watch for is potential federal tax cuts which could undermine the tax advantages of munis.
| 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 to cash.
| SECURITIZED (MBS) |
- The outlook for agency MBS remains broadly positive in view of recovering fundamentals and an improving technical backdrop.
- A combination of more compelling relative valuations along with a return of institutional buyers to the marketplace could support MBS.
| M F S C O N S I D E R A T I O N S |
- Agency MBS offer diversification and defensive benefits as well as attractive spreads over Treasuries. With improving valuations and technicals, a favorable stance appears appropriate.
BLANK
| US INV-GRADE CORP |
- The macro environment remains positive for credit, and the fundamental backdrop is satisfactory.
- However, the valuation landscape is challenged, mainly reflecting the impact of rich spread valuation.
| M F S C O N S I D E R A T I O N S |
- We have turned more cautious towards IG, mainly owing to the historically low spread level. Nevertheless, expected returns are likely to remain robust from attractive carry.
| US HIGH YIELD |
- Fundamentals remain solid, helped by historically low levels of leverage and strong earnings.
- Other positive drivers include low projected default rates, 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 |
- We believe that the risk/ reward for US HY total returns is favorable, especially in relation to other asset classes.
- With HY, security selection remains a critical part of the investment process, given the credit risk involved.
| EMERGING MARKET DEBT |
- While the threat of tariffs looms large, we believe robust fundamentals and flexible EM currency regimes should help offset some of their adverse impact.
- On the positive side, the technical backdrop is supportive, with many investors appearing to be underinvested in EM.
| M F S C O N S I D E R A T I O N S |
- While total yield valuation remains compelling, country spreads are tight and EM remains exposed to global risks, including geopolitics.
- 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.
Unless otherwise indicated, logos and product and service names are trademarks of MFS® and its affiliates and may be registered in certain countries.
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