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MFS Long-Term Capital Market Expectations JULY 2026

Executive Key insights Summary

MFS® is pleased to present the July 2026 edition of our Long-Term Capital Market Expectations, offering a proprietary outlook on return and risk across a variety of asset classes and regions. Despite continued market volatility driven by geopolitical uncertainty and shifting central bank expectations, global equities have remained resilient, advancing more than 10% through the first half of the year1. Developed international equities have continued to outpace US large-cap stocks since the start of 2025, while emerging markets have stood out as the top performer, supported by rising demand for AI-related semiconductors and memory chips. In the US, market leadership is broadening beyond mega-cap companies, with the Magnificent Seven lagging the broader market amid concerns over rising AI capex spending and increased funding from both equity and fixed income markets. Value and SMID-cap equities are now gaining traction as earnings growth broadens beyond mega-cap. On the fixed income front, global markets moved from expecting rate cuts in 2026 at the start of the year to rate hikes as inflation concerns reemerged. Against this backdrop, global bond returns have remained subdued, gaining just 0.5% year to date after delivering nearly 5% in 2025.2 Over the next decade, we project global equities to generate a nominal total return of 2.1%, revised down from January’s forecast of 2.8%. Valuations remain elevated, with forward price-to-earnings ratio continuing to trade above the long-term average of 14.8x3. Profit margins also remain high at 11%, compared with the long-term average of 8.5%, while earnings growth has remained resilient against a stable economic backdrop4. Looking ahead, we expect valuations and profit margins to moderate, while real sales growth and dividend yield become the primary drivers of global equity returns. From a regional perspective, US large-cap equities are expected to face the greatest valuation and margin compression, as both remain well above historical averages, resulting in a subdued 10-year nominal return forecast of 0.5%. By comparison, developed international and emerging market equities are projected to deliver stronger returns of 5.5% and 4.1%, respectively, driven by solid real sales and dividend growth, as well as valuation expansion. Our nominal fixed income total returns over the next 10 years are 4.5% for global aggregate bonds and 4.9% for US aggregate bonds. The fixed income return expectations are based on several key building blocks, including starting yield, yield curve roll- down, price appreciation, and credit spreads. In a higher-for-longer rate environment, we expect carry, rather than changes in interest rates, to be the primary driver of fixed income returns in the years ahead. Across the fixed income spectrum, higher starting yields continue to provide compelling entry points for investors and remain the most important driver given their historically strong correlation with subsequent long-term returns. At the same time, credit spreads remain tight, with global investment-grade spreads near 78 basis points and high-yield spreads around 280 basis points, both toward the tighter end of historical ranges.5 Even so, corporate balance sheets and earnings growth remain healthy while overall credit quality has remained stable. That said, idiosyncratic and sector-specific risks persist, reinforcing our view that careful security selection remains critical, even in an environment characterized by relatively calm credit conditions.

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MFS LONG-TERM CAPITAL MARKET EXPECTATIONS JULY 2026

Region Asset class Long-term return expectation6 Long-term risk expectation Inflation 3.3% 0.9%

Equities (Unhedged nominal total return) US US equities 0.8% 14.8% US large-cap equities 0.5% 14.3% US small-cap equities 3.3% 19.5% NON-US REGIONAL Asia ex Japan equities 3.9% 18.0% EAFE equities 5.5% 15.2% Emerging market equities 4.1% 18.0% Europe ex UK equities 5.5% 17.3% Global equities 2.1% 14.4% COUNTRY Australian equities 5.4% 20.2% Canadian equities 4.3% 16.9%…