U.S. economic news

Gauge of economic activity shows modest gain
The Conference Board said its index of leading economic indicators, a forecast of future economic activity, rose 0.3% in January. The increase is lower than both the 1.2% increase reported in December and November’s 1.1% gain. January’s figure was below the 0.5% gain expected by economists polled by Thomson Reuters.


Industrial production, factory output increase
The Fed reported that U.S. industrial production rose 0.9% in January, the seventh-straight monthly increase. Output at factories, mines, and utilities increased 0.9% in January after a 0.7% increase the prior month. Economists forecast industrial production would increase 0.7%, the median of 78 projections in a Bloomberg News survey.


Homebuilder confidence edges up
An industry measure of U.S. homebuilder confidence rose in February from a seven-month low in January, but remained at a level that signals lingering concern. The National Association of Home Builders said its housing-market index, a measure of builder attitudes regarding prospects for selling single-family homes, rose two points to 17 in February, still well below the threshold level of 50. A reading of 50 or above indicates that more builders view sales conditions positively than negatively.


New jobless claims unexpectedly rise
The U.S. Department of Labor said the number of newly laid-off workers filing claims for unemployment benefits surprisingly rose to 473,000 in the week ended February 13. The figure represents an increase from the previous week of 31,000 jobless. A consensus estimate of economists surveyed by Briefing.com had forecast that jobless claims would fall to 438,000.

U.S. and global corporate news

Mergers and acquisitions update
General Growth Properties, the number-two mall owner in the United States, rejected Simon Property Group's $10 billion takeover bid. In a letter declining the world's largest shopping-mall operator's offer, General Growth said "our objective is to maximize value for the company and its stakeholders, and we are engaging in a process that is intended to accomplish that result in an expeditious manner." Simon’s takeover would have significantly changed the mall landscape throughout the United States. General Growth is in the process of trying to emerge from bankruptcy protection.


Walgreen agreed to buy Duane Reade from Oak Hill Capital Partners for $1.08 billion, including assumed debt. The purchase will make Walgreen, which is the biggest U.S. drugstore chain, the market leader in New York City. Walgreen, which expects to finalize the deal by the end of August, will retain the chain name.


Earnings roundup
Barclays said its annual profit more than doubled, a sign that the bank's purchase of Lehman Brothers' North American assets in September 2008 has begun to see results. Barclays posted a 9.39 billion pound net profit for 2009, up from net of 4.38 billion pounds a year earlier. The figures include a 6.33 billion pound gain from the sale of nearly 80% of its Barclays Global Investors to asset manager BlackRock.


Merck, which completed a $41-billion acquisition of Schering-Plough in early November, reported that its fourth-quarter profit increased to $6.49 billion from $1.64 billion a year earlier. To generate promised cost savings, the drug maker also announced plans to lay off 15% of its global work force, nearly 15,000 employees, by the end of 2012.


Kraft Foods reported that its fourth-quarter profit more than tripled amid strong sales in developing markets, moderating commodity prices, and efforts to reduce costs. Profit for the food maker jumped to $710 million for the period ended December 31, 2009, up from $178 million a year earlier.

For the quarter ended January 30, 2010, Abercrombie & Fitch recorded a profit of $47.5 million, down 31% from the $68.4 million the teen clothing retailer posted a year earlier. Revenue decreased 4.6% to $936 million. The retailer, which has struggled as its customers have turned to lower-priced competitors, said 2010 will be a year of improvement.


Whole Foods’ fiscal first-quarter earnings jumped 79% as sales at stores open at least one year rose for the first time in six quarters. The retailer posted a profit of $49.7 million, compared with $27.8 million a year ago, a sign that discounts and a refocus on natural foods are paying off.

Global economic news


OECD countries show expansion
The Organization for Economic Cooperation and Development (OECD) released figures that indicated economic output in its 30 members was 0.8% higher during the fourth quarter of 2009 than in the third quarter. The increase came despite a slowdown in growth in Europe, with the 27-member European Union recording 0.1% growth in the fourth quarter following a 0.3% expansion in the previous quarter. OECD members account for 61.3% of the world’s gross domestic product.


Greece exploring bond sale; EU gives country one-month deadline
Following reports suggesting that Greece used currency swaps and other instruments to lower the amount of debt reported on its government balance sheet, fellow eurozone countries have given the country one month to balance its budget. European Union countries want to avoid a bailout of Greece unless absolutely necessary. While Greece’s Finance Minister George Papaconstantinou said the country is ahead of its own deficit-reduction targets and will not require a bailout from the EU, the country's government is set to launch a nearly $7 billion bond offering to raise money quickly.

Stay focused and diversified
In any market environment, we strongly believe that investors should stay diversified across a variety of asset classes. By working closely with your financial advisor, you can help ensure that your portfolio is properly diversified and that your financial plan supports your long-term goals, time horizon, and tolerance for risk. Diversification does not guarantee a profit or protect against loss.

The views expressed here are those of MFS^®and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any MFS investment product. Individual securities mentioned are for illustrative purposes only and may not be relied upon as investment advice or as an indication of trading intent on behalf of any MFS product.

Securities discussed may or may not be holdings in any of the MFS funds. For a complete list of holdings for any MFS portfolio, please see the most recent annual, semiannual, or quarterly report.


Past performance is no guarantee of future results.

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; boston.com.

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Market Week: February 15, 2010

The Markets

After an encouraging start, domestic equities resumed their recent losing ways. Small caps and international stocks led the indexes downward--the Dow dropped 268 points on Thursday alone--as domestic equities edged closer to the 10% decline from recent levels that is typically considered the hallmark of a correction. The Russell 2000 is now down about 8.6% from its January 19 high; the Nasdaq has fallen about 7.7% in the same time.

Market/Index	2009 Close	Prior Week	As of 2/5	Week Change	YTD Change
DJIA	10428.05	10067.33	10012.23	-.55%	-3.99%
NASDAQ	2269.15	2147.35	2141.12	-.29%	-5.64%
S&P 500	1115.10	1073.87	1066.19	-.72%	-4.39%
Russell 2000	625.39	602.04	592.98	-1.50%	-5.18%
Global Dow	1984.48	1882.49	1835.66	-2.49%	-7.50%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.63%	3.59%	-4 bps	-26 bps

Last Week's Headlines

• Mixed messages: The unemployment rate actually fell--that's right, FELL--in January to 9.7%. That's the lowest rate since August, and the biggest single-month drop in more than a decade. Even including people who are underemployed or who have given up looking for a job, the total unemployment percentage dropped to 16.5% from 17.3%. However, a separate survey found that a loss of 20,000 jobs left business payrolls essentially flat. Also, the rolling four-week average of initial unemployment claims continued to rise, though the number was roughly 19% lower than at this time last year.
• December construction declined 1.2% from the previous month. That's 9.9% below last December, and is a bit better than the 12.4% decline for all of 2009.
• Manufacturing improved in January for the sixth month in a row. The Institute for Supply Management's index rose to 58.4%, the highest number since August 2004 (any number over 50 indicates manufacturing growth).
• Despite a sharp drop in Toyota sales (no surprise there), January auto sales were up 6.3% from December, marking the third consecutive increase over the previous year's monthly figure. Both Ford and GM reported increased sales. Much of the buying was done by business fleets rather than individual consumers.
• Business productivity began to slow in the fourth quarter of last year, though it was up 2.9% for all of 2009. The output of goods produced in Q4 rose 7.2%, while the number of total hours worked by the labor force was up 1%--the first increase since Q2 2007. (However, the total hours worked for all of 2009 was down 6.4%, a record decline.)
• Incomes rose 0.4% in December, though wages and salaries were up by only 0.1%. Consumer spending also increased by 0.2%, and the personal savings rate rose to 4.8% from 4.5% in November.
• A weak auction of Portuguese sovereign debt and Spain's forecast of higher budget deficits for the next three years fanned investor concern that Greece's economic troubles might be only a hint of what's to come for the European Union. As a result, the euro hit an eight-month low (just under $1.37) against the dollar.
• President Obama proposed a $3.8 trillion budget for the fiscal year that begins in September. It forecasts a $1.56 trillion budget deficit for next year, compared to the $1.2 trillion deficit when Obama took office and the estimated $1.3 trillion deficit this year.

Eye on the Week Ahead

A light week for economic data gives investors little to focus on other than retail sales, additional earnings reports, and the potential fallout from credit woes in several European countries.

Key data releases: International trade, Treasury budget (2/10); retail sales (2/11).

Data source: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

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