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April 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.

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Market Insights Team

 

KEY TAKEAWAYS

  • While we don’t expect a recession, shifts in US economic policy have weakened the growth outlook as volatile US policymaking ramps up global uncertainty.
  • US exceptionalism is ebbing as European and US economic growth expectations converge, leading to a weaker dollar and lower appetite for US assets while reviving demand for European ones.
  • Europe’s defense buildup and a fresh focus on shoring up infrastructure may allow the EU economy to better weather any headwinds from US trade policy. China’s efforts to boost domestic demand may do the same.
  • The current uncertain environment could present active managers with opportunities to capitalize on global market dislocations.

   

  • Economy & Markets

    Economy & Markets

    | Tariff Turbulence 

    Policy uncertainty has dented investor sentiment.

    MFS PERSPECTIVE

    • Investors have grown increasingly concerned over the growth outlook, both at the US and the global level, from the fallout from the ongoing trade war.
    • Until calm is restored on trade policy, volatility is likely to stay elevated, presenting active managers with opportunities to capitalize on global  dislocations.

     

     

    | US – Germany Growth Divergence

    US exceptionalism is being questioned

    MFS PERSPECTIVE

    • The US appears to be slowing moderately but fears of an imminent recession may be overdone.
    • At the same time, European growth expectations are being revised up, mainly reflecting the impact of Germany’s fiscal bazooka.
    • We are observing a re-convergence of growth expectations, benefiting the rest of the world.

     

     

    | US Dollar vs. EM Currencies

    The case for a strong dollar is being challenged

    MFS PERSPECTIVE

    • Contrary to expectations, the dollar has weakened in the face of the ongoing trade war.
    • The noise surrounding tariffs has hurt the appetite for USD assets, opening the door for a rebound in the EUR and many EM currencies.
    • We're no longer bullish on the US dollar.

     

     

    | US vs. Non-US Equity

    Non-US benefits from converging economic growth expectations

    MFS PERSPECTIVE

    • Momentum in US equities has rolled over, with the most expensive stocks suffering the most.
    • US equities are pricing in the potential impact of Trump 2.0 on the growth outlook while non-US markets are benefiting from European fiscal stimulus and macro stabilization in China.

  • US Equity
    USD based

     

     

    US
    decorative

     

     

    • UNDERWEIGHT     • NEUTRAL     • OVERWEIGHT

    • While we have an idea of the Trump Administration’s desired destination of smaller government, reduced debt and a stronger industrial base, the path to get there remains uncertain and is unlikely to be smooth.
    • Concerns are centered on slowing growth and rising prices, and how the administration sequences its policy agenda while preventing the economic “detox” from turning cold turkey.
    • Investors bracing for a slower-growth environment in 2025 should focus on valuation and resilient, durable and defensive businesses and increasing dispersion.

     

    MFS CONSIDERATIONS
    LARGE CAP
    • Given high uncertainty, we continue to favor large caps over SMIDs.
    • Multiples remain elevated and are a potential headwind in the face of growth and inflation concerns.
    • However, earnings expectations, despite softening, remain in the double digits.
    • As the growth tide retreats, identifying winners and losers increases in importance.
    SMALL/MID CAP
    • SMID caps are likely to be more impacted by slowing US growth and rising prices.
    • Inflationary concerns may keep rates higher, a further headwind.
    • Deregulation and tax cuts are likely to be supportive for SMID caps, but their extent and timeframe remains uncertain.

     

    GROWTH
    • Growth stock momentum has stalled, placing greater focus on the style’s durability.
    • Mega-cap tech will continue to drive index returns, but we are seeing greater divergence in performance.
    • The opportunity cost of not owning the Magnificent Seven has decreased as the group’s growth and valuation profile is converging with the Russell 1000® Growth Index.
    VALUE
    • Value has outperformed, led by defensives.
    • We continue to believe that cyclicals, despite some valuation cushion, will be more impacted by growth concerns.
    • Given current circumstances, we prefer more defensive, higher-quality value stocks.
    • Higher-yielding value stocks are benefiting from falling rates.

  • Global Developed Equity - Ex US
    USD based

    EUROPE EX UK
    • German fiscal stimulus and Europe-wide defense spending has changed the landscape significantly.
    • Stocks have responded positively and rerated, but valuations remain undemanding as growth and sentiment improve.
       
    M F S   C O N S I D E R A T I O N S
    • We expect some near-term consolidation as the positive news is absorbed.
    • We expect to see flows continue to support European equities as investors rebalance from being very underweight the region, albeit at a slower pace going forward.
    UK
    • Valuations remain very undemanding.
    • The UK is expected to face fewer US tariff risks than others. 
    • Economic growth remains scarce, though UK equity earnings are derived mostly overseas.

       
    M F S   C O N S I D E R A T I O N S
    • An improving Europe may bolster the UK as relations with the continent strengthen amid geopolitical shifts.
    • The UK market delivers a healthy dividend and increasing buyback activity.
    • Tighter fiscal policy remains a concern.
    JAPAN
    • Real wages continue to grow as the economy reflates.
    • Valuations remain attractive with ongoing opportunities for balance sheet reform.
    • Foreign investor enthusiasm appears to have peaked due to a stronger JPY.
       
    M F S   C O N S I D E R A T I O N S
    • Earnings revisions remain positive.
    • Rising rates remain a concern.
    • Domestically oriented stocks should benefit from a stronger local economy and a slowing US economy.

  • Emerging Markets
    USD based

    EM EQUITY
    • DeepSeek’s AI advance and further stimulus seems to have steadied the Chinese market.
    • A weakening USD is broadly supportive for Emerging Markets.
    • Uncertainty over tariffs presents a potential headwind.
       
    M F S   C O N S I D E R A T I O N S
    • A slowing semiconductor cycle may continue to pressure Taiwan and Korea.
    • Brazil’s high rates and unsteady macro environment remain a challenge.
    • Beyond Chinese tech, signs of a consumer recovery are needed to drive gains.
    EM DEBT - HARD CURRENCY
    • Watch for the impact of global risks, ranging from Trump 2.0 to geopolitics to China’s structural headwinds.
    • Despite tight spreads, the valuation backdrop remains favorable on a total-yield basis.

       
    M F S   C O N S I D E R A T I O N S
    • Contrary to initial concerns, EM debt has shown remarkable resilience since the US election.
    • EMD remains attractive amid compelling total yield valuations.
    • Given significant risks, country selection will be key.
    EM DEBT - LOCAL CURRENCY
    • Concerns around a strong dollar under Trump 2.0 have eased.
    • This in part reflects the recent pivot in European fiscal policies along with an already richly valued USD.
    • Trends of slowing global growth bear watching.
    M F S   C O N S I D E R A T I O N S
    • A weaker dollar environment is likely to act as a major tailwind.
    • A more tactical asset class by nature due to higher volatility, it faces a challenging global backdrop.

    BLANK

  • Global Fixed Income
    USD based

    • UNDERWEIGHT     • NEUTRAL     • OVERWEIGHT

    USD DURATION
    • Disinflation uncertainty, combined with downside risks to growth, have complicated the rate outlook.
    • While not our base case, significant deterioration in the US labor market may demand further Fed action, benefiting duration.
       
    MFS CONSIDERATIONS
    • The risk to rates is now well balanced.
    • We have moved to a neutral stance on duration, reflecting the elevated level of uncertainty.
    EURO DURATION*
    • Modifications to the German debt brake sent bund yields higher on expectations of higher growth and issuance.
    • Defense and infrastructure–related spending should be a tailwind for growth.
    • ECB rate cut odds have diminished.
    M F S   C O N S I D E R A T I O N S
    • The increasing fiscal impulse has softened the case for duration.
    • The recent selloff has left yields near multi-decade highs.
    • A weaker outlook, but compelling valuation, leaves us neutral overall.
    US IG CORP
    • The macro backdrop remains broadly positive, fundamentals remain respectable after recent margin and free cash flow improvements.
    • However, spread valuation is challenging, making overall valuations less attractive than other fixed income 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 the tight valuation, which keeps us cautious.
    US HIGH YIELD
    • Fundamentals are 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 and robust technicals are supportive of tight valuations.
    • The recently announced German fiscal package should benefit sectors such as defense and utilities.
       
    M F S   C O N S I D E R A T I O N S
    • While yield valuations remain compelling, spreads have tightened recently and are now tighter than their US counterparts for the first time in several years, diminishing their relative appeal.
    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

| Tariff Turbulence 

Policy uncertainty has dented investor sentiment.

MFS PERSPECTIVE

  • Investors have grown increasingly concerned over the growth outlook, both at the US and the global level, from the fallout from the ongoing trade war.
  • Until calm is restored on trade policy, volatility is likely to stay elevated, presenting active managers with opportunities to capitalize on global  dislocations.

 

 

| US – Germany Growth Divergence

US exceptionalism is being questioned

MFS PERSPECTIVE

  • The US appears to be slowing moderately but fears of an imminent recession may be overdone.
  • At the same time, European growth expectations are being revised up, mainly reflecting the impact of Germany’s fiscal bazooka.
  • We are observing a re-convergence of growth expectations, benefiting the rest of the world.

 

 

| US Dollar vs. EM Currencies

The case for a strong dollar is being challenged

MFS PERSPECTIVE

  • Contrary to expectations, the dollar has weakened in the face of the ongoing trade war.
  • The noise surrounding tariffs has hurt the appetite for USD assets, opening the door for a rebound in the EUR and many EM currencies.
  • We're no longer bullish on the US dollar.

 

 

| US vs. Non-US Equity

Non-US benefits from converging economic growth expectations

MFS PERSPECTIVE

  • Momentum in US equities has rolled over, with the most expensive stocks suffering the most.
  • US equities are pricing in the potential impact of Trump 2.0 on the growth outlook while non-US markets are benefiting from European fiscal stimulus and macro stabilization in China.

US Equity
USD based

 

 

US
decorative

 

 

• UNDERWEIGHT     • NEUTRAL     • OVERWEIGHT

  • While we have an idea of the Trump Administration’s desired destination of smaller government, reduced debt and a stronger industrial base, the path to get there remains uncertain and is unlikely to be smooth.
  • Concerns are centered on slowing growth and rising prices, and how the administration sequences its policy agenda while preventing the economic “detox” from turning cold turkey.
  • Investors bracing for a slower-growth environment in 2025 should focus on valuation and resilient, durable and defensive businesses and increasing dispersion.

 

MFS CONSIDERATIONS
LARGE CAP
  • Given high uncertainty, we continue to favor large caps over SMIDs.
  • Multiples remain elevated and are a potential headwind in the face of growth and inflation concerns.
  • However, earnings expectations, despite softening, remain in the double digits.
  • As the growth tide retreats, identifying winners and losers increases in importance.
SMALL/MID CAP
  • SMID caps are likely to be more impacted by slowing US growth and rising prices.
  • Inflationary concerns may keep rates higher, a further headwind.
  • Deregulation and tax cuts are likely to be supportive for SMID caps, but their extent and timeframe remains uncertain.

 

GROWTH
  • Growth stock momentum has stalled, placing greater focus on the style’s durability.
  • Mega-cap tech will continue to drive index returns, but we are seeing greater divergence in performance.
  • The opportunity cost of not owning the Magnificent Seven has decreased as the group’s growth and valuation profile is converging with the Russell 1000® Growth Index.
VALUE
  • Value has outperformed, led by defensives.
  • We continue to believe that cyclicals, despite some valuation cushion, will be more impacted by growth concerns.
  • Given current circumstances, we prefer more defensive, higher-quality value stocks.
  • Higher-yielding value stocks are benefiting from falling rates.

Global Developed Equity - Ex US
USD based

EUROPE EX UK
  • German fiscal stimulus and Europe-wide defense spending has changed the landscape significantly.
  • Stocks have responded positively and rerated, but valuations remain undemanding as growth and sentiment improve.
     
M F S   C O N S I D E R A T I O N S
  • We expect some near-term consolidation as the positive news is absorbed.
  • We expect to see flows continue to support European equities as investors rebalance from being very underweight the region, albeit at a slower pace going forward.
UK
  • Valuations remain very undemanding.
  • The UK is expected to face fewer US tariff risks than others. 
  • Economic growth remains scarce, though UK equity earnings are derived mostly overseas.

     
M F S   C O N S I D E R A T I O N S
  • An improving Europe may bolster the UK as relations with the continent strengthen amid geopolitical shifts.
  • The UK market delivers a healthy dividend and increasing buyback activity.
  • Tighter fiscal policy remains a concern.
JAPAN
  • Real wages continue to grow as the economy reflates.
  • Valuations remain attractive with ongoing opportunities for balance sheet reform.
  • Foreign investor enthusiasm appears to have peaked due to a stronger JPY.
     
M F S   C O N S I D E R A T I O N S
  • Earnings revisions remain positive.
  • Rising rates remain a concern.
  • Domestically oriented stocks should benefit from a stronger local economy and a slowing US economy.

Emerging Markets
USD based

EM EQUITY
  • DeepSeek’s AI advance and further stimulus seems to have steadied the Chinese market.
  • A weakening USD is broadly supportive for Emerging Markets.
  • Uncertainty over tariffs presents a potential headwind.
     
M F S   C O N S I D E R A T I O N S
  • A slowing semiconductor cycle may continue to pressure Taiwan and Korea.
  • Brazil’s high rates and unsteady macro environment remain a challenge.
  • Beyond Chinese tech, signs of a consumer recovery are needed to drive gains.
EM DEBT - HARD CURRENCY
  • Watch for the impact of global risks, ranging from Trump 2.0 to geopolitics to China’s structural headwinds.
  • Despite tight spreads, the valuation backdrop remains favorable on a total-yield basis.

     
M F S   C O N S I D E R A T I O N S
  • Contrary to initial concerns, EM debt has shown remarkable resilience since the US election.
  • EMD remains attractive amid compelling total yield valuations.
  • Given significant risks, country selection will be key.
EM DEBT - LOCAL CURRENCY
  • Concerns around a strong dollar under Trump 2.0 have eased.
  • This in part reflects the recent pivot in European fiscal policies along with an already richly valued USD.
  • Trends of slowing global growth bear watching.
M F S   C O N S I D E R A T I O N S
  • A weaker dollar environment is likely to act as a major tailwind.
  • A more tactical asset class by nature due to higher volatility, it faces a challenging global backdrop.

BLANK

Global Fixed Income
USD based

• UNDERWEIGHT     • NEUTRAL     • OVERWEIGHT

USD DURATION
  • Disinflation uncertainty, combined with downside risks to growth, have complicated the rate outlook.
  • While not our base case, significant deterioration in the US labor market may demand further Fed action, benefiting duration.
     
MFS CONSIDERATIONS
  • The risk to rates is now well balanced.
  • We have moved to a neutral stance on duration, reflecting the elevated level of uncertainty.
EURO DURATION*
  • Modifications to the German debt brake sent bund yields higher on expectations of higher growth and issuance.
  • Defense and infrastructure–related spending should be a tailwind for growth.
  • ECB rate cut odds have diminished.
M F S   C O N S I D E R A T I O N S
  • The increasing fiscal impulse has softened the case for duration.
  • The recent selloff has left yields near multi-decade highs.
  • A weaker outlook, but compelling valuation, leaves us neutral overall.
US IG CORP
  • The macro backdrop remains broadly positive, fundamentals remain respectable after recent margin and free cash flow improvements.
  • However, spread valuation is challenging, making overall valuations less attractive than other fixed income 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 the tight valuation, which keeps us cautious.
US HIGH YIELD
  • Fundamentals are 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 and robust technicals are supportive of tight valuations.
  • The recently announced German fiscal package should benefit sectors such as defense and utilities.
     
M F S   C O N S I D E R A T I O N S
  • While yield valuations remain compelling, spreads have tightened recently and are now tighter than their US counterparts for the first time in several years, diminishing their relative appeal.
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. 

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