Economy & Markets
| Midterm Election Volatility Historically Has Been Temporary |
MFS PERSPECTIVE
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| AI Capex to Support Broader Earnings Growth |
MFS PERSPECTIVE
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| Earnings Momentum Is Broadening Beyond US Megacaps |
MFS PERSPECTIVE
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| Current Yields Suggest Strong Income and Fixed Income Return Potential |
MFS PERSPECTIVE
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Equity
Assets Class Views
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Fundamentals → |
Earnings Revisions ↑ |
Macro →
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Emerging MarketsEmerging markets are benefiting from resilient growth, improving liquidity conditions, and rising investment tied to AI infrastructure, datacenters, and advanced manufacturing. Elevated rates and China-related weakness remain key headwinds, while narrow, AI-led earnings growth reinforces the need for country and sector selectivity.
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Non-US DevelopedThese markets offer distinct sources of return beyond the US AI trade. Japan’s corporate reforms, improving earnings, and capital discipline remain key tailwinds, while Europe is supported by robust profits, stabilizing manufacturing, and wider sector participation. Earnings remain resilient, though growth continues to trail the US.
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US Equity
Assets Class Views
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Fundamentals ↑ |
Earnings Revisions ↑ |
Macro →
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GrowthAI spending remains the primary driver of US growth equities, with companies positioned as spending beneficiaries being rewarded. However, recent volatility highlights the risks associated with narrow market leadership. Rising capital intensity and accelerating AI adoption increase the importance of security selection as markets distinguish between which companies are earning real returns on their AI-related investments.
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Large CapAI investment and strong earnings results have supported returns, but market leadership has been narrow as semiconductor and other AI related names have benefited. Improving market participation will depend on the continued broadening of earnings growth beyond semiconductors and hyperscalers.
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ValueValue continues to offer diversification from narrowly driven markets tied to the AI trade. Resilient US economic growth, persistently high interest rates, tight energy supply, and continued demand for tangible assets create a favorable environment for value-oriented businesses with strong cash flow generation and meaningful pricing power.
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Small/Mid-CapA resilient US economy and accelerating AI investment continue to fuel broadening earnings growth for smid-caps. However, tighter financial conditions may pose a headwind to companies with lower quality earnings and balance sheets. We favor mid-caps over small caps given their stronger profitability and more flexible balance sheets.
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Fixed Income
Assets Class Views
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Fundamentals ↑ |
Technicals → |
Valuations ↑
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US Investment GradeFundamentals remain robust amid elevated margins and healthy balance sheets. Additionally, strong earnings support credit quality, bolstering US IG relative to lower-quality credit. Despite recent modest widening, spreads remain tight, limiting further compression. While debt financed AI capex has increased supply, spreads have thus far taken the increase in stride. All-in yields remain historically attractive. Carry is likely to be the main return driver, while rates remain elevated. |
US SecuritizedMortgage rates near multi-year highs are constraining new supply. Yields have risen sharply since January, moving valuations from expensive to more reasonable. Demand remains challenged, however, as elevated rate volatility continues to weigh on the market.
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US MunicipalsMunicipal valuations have become more attractive with tax exempt yields back above 3.5%. State finances remain healthy, but dispersion between sectors is rising. Fund outflows recently hit a four-year high, even as the new bond supply hits record levels. |
US HYHigh-yield spreads are at their widest in over a year amid higher rates, AI concerns, and geopolitical tensions. Persistent outflows have hit the riskiest bonds hardest, reinforcing our preference for higher quality issues to help manage downside risk.
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US TreasuriesGeopolitical, fiscal, and monetary concerns have pushed market rates higher. Even with yields now more compelling, we remain neutral given the policy risks and macro uncertainty. Technicals are adequate as foreign demand remains healthy. |
EM DebtResilient fundamentals and attractive yields remain supportive. However, spreads are quite tight and may not fully compensate investors for higher uncertainty, leading us to stay selective and favor liquid sovereigns over corporates. |
Industry Flows
Money in motion by Morningstar category
1Source: Bloomberg. Percentile rank calculated using daily data from 20 October 2006 to 19 October 2026. Yield = yield to worst. US Agg = Bloomberg US Aggregate.
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