Week in Review: Markets continue to slide as world economy struggles

U.S. economic news

U.S. unemployment rate drops, jobless numbers grow
The official U.S. unemployment rate fell to 9.5% in June from 9.7% in May, in a report released Friday morning by the Labor Department. The U.S. economy shed 125,000 jobs in June, mainly driven by the elimination of temporary census jobs. Private sector jobs grew by 83,000. While the news was not rosy, it was better than had been expected and caused a minor rebound in the major U.S. stock indices Friday morning.

Weekly jobless claims climb
Weekly initial jobless claims rose 13,000 to 472,000 in the week ended June 26. The four-week moving average, which smooths the data’s volatility, rose 3,250 to 466,500.

U.S. consumer confidence declines
Consumer confidence fell substantially in June as concerns grew about the U.S. economic recovery. The Conference Board’s index of consumer confidence for June declined to 52.9 from 62.7 in May, far below the 62.5 reading economists had expected in a survey conducted by Dow Jones Newswire.

U.S. manufacturing activity grows more slowly
U.S. factory activity slowed in June. The Institute for Supply Management index dropped to 56.2 from 59.7. This measure indicates that manufacturing activity was growing but at a slower pace. The ISM business barometer slipped to 59.1 in June from 59.7 in May.

Pending home sales plummet
U.S. pending home sales fell 30% in May with the termination of the federal tax credit program that had given a key boost to the housing market. The National Association of Realtors index for pending sales of existing homes dropped to 77.6 from 110.9 in April. Pending home sales in May were down almost 16% from a year earlier.

Automakers’ sales stall
New vehicle sales in the United States decelerated in June, providing another signal that the economy could be stalling. According to Autodata, U.S. auto sales fell about 4.7% from May to June. Sales fell 14% for Toyota, 13% for General Motors, 12% for Chrysler, and 11% for Ford, levels that exceeded the typical annual May-to-June 3% sales decline. However, all automakers reported increases from a year earlier.

U.S. and global corporate news

General Mills’ profit declines
Packaged food company General Mills reported a 41% decline in its fourth-quarter earnings, and its sales fell 2% from the year-earlier period, which included an extra week. However, excluding the extra week, earnings fell only 5%, and sales rose 4%.

Monsanto earnings fall
Agricultural biotechnology company Monsanto posted a 45% drop in its third-quarter profit, hurt by weed-killer competition and a backlash by farmers against high-priced genetically modified seeds. Sales fell 6.3% for the quarter.

Global economic news

Factory growth continues but gains slow globally
Manufacturing activity expanded globally in June, but the pace of growth slowed in most countries. Only Greece, Hungary, and South Africa had a contraction in manufacturing, while Germany, Brazil, Italy, Russia, and Poland saw a pickup in the pace of growth in their purchasing manager indices, according to The Wall Street Journal. Countries that recorded slower growth included the United States, China, the United Kingdom, Japan, France, and Spain.

Japan’s economy slows slightly
Industrial output in Japan fell a seasonally adjusted 0.1% in May, due largely to a 1.7% slowdown in exports, which were hurt by the fading impact of economic stimulus measures, recalls from Toyota and other Japanese automakers, and strikes at Chinese factories. Japanese industrial output had risen the three previous months.

Eurozone economic recovery falters
The Conference Board’s Leading Economic Index for the eurozone fell 0.5% to 109.7 in May, its first decline in 14 months. However, the LEI for the eurozone is still almost 15% higher than its trough in March 2009.

Consumer confidence climbs in eurozone
Consumer confidence rose slightly in June in the Eurozone, according to the European Commission’s overall Economic Sentiment Indicator, which rose to 98.7 from 98.4. Economists had forecast a decline to 98. However, consumer confidence in the United Kingdom fell in June to its lowest level since last August.

German unemployment ebbs for the 12^th straight month
Despite problems facing other European countries, Germany continues to make progress on its economic recovery, as German unemployment fell for a twelfth consecutive month in June. The unemployment rate in Europe’s largest economy declined to 7.5% from 7.7% in May. The number of jobless fell by 88,000 to 3,153 million, according to the Federal Labor Agency. However, when adjusted for seasonal swings, the jobless rate was 7.7%, unchanged from May, and the number of jobless declined by only 21,000.

U.S. and global corporate news

Nike profit leaps 53%
Nike's fourth-quarter profit was a healthy 53% higher than a year earlier as the athletic shoe maker benefited from streamlined costs and trimmed inventory along with robust sales growth in the United States, Europe, and emerging markets.

Oracle profit rises 25%
Oracle posted strong sales and earnings results on an increase in sales of database and other business software and new revenue from its acquisition of Sun Microsystems. Oracle's revenue rose 39% to $9.5 billion, including $1.8 billion of revenue from Sun products and support services.

Dell forecasts revenue growth
Dell issued a statement ahead of its annual analyst meeting next week, forecasting revenue growth of 14% to 19% for the rest of the fiscal year. Dell, once the world's largest personal computer maker, but now ranked third, also said it expects adjusted operating income to rise 18% to 23%.

Global economic news

China eases USD currency peg
In a move to help escape criticism for manipulating global currency markets, China removed the yuan's two-year peg to the U.S. dollar, allowing it a limited amount of flexibility. It is expected that a stronger Chinese currency will help the exports of other countries, including the United States, become more competitive. The move comes just before this weekend's G-20 meeting in Toronto.

Greek debt costs more to insure
In yet another reflection of market anxiety over Greek debt levels, the cost of insuring Greek sovereign debt against default rose early Friday, reaching a record. Greece's five-year sovereign credit default swaps reached 11.31 percentage points. This means that it would cost $1.131 million annually to insure $10 million of Greek government debt for five years. It implies a 69% probability of default over the next five years.

Germany, France, United Kingdom to levy banks
Governments in Germany, France, and the United Kingdom said they will introduce bank levies to pay for future financial crises, and they will urge their counterparts at the Group of 20 industrial and developing nations to take similar actions at this week's G-20 meeting in Toronto.

German business confidence rises
German business confidence rose in June based on an index of German business sentiment published by Ifo, which reached 101.8 in June from 101.5 in May. Economists had forecast a drop below 101. A sub-index measuring current business conditions was strong, but another index indicating expectations of trade conditions in the next six months declined.

Taiwan raises rates
In a surprise move, Taiwan's central bank raised interest rates, its first such move since June 2008. The Central Bank of the Republic of China (Taiwan) raised its key rates by 12.5 basis points and stated the economy is performing better than anticipated. Taiwan joins numerous Asian neighboring countries in raising rates as the region's robust economies rebound from the recession. Australia, New Zealand, India, Vietnam, and Malaysia have all increased interest rates, while China, Indonesia, Singapore, and the Philippines have taken other actions to tighten monetary policy.


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

--see disclaimer below--

Market Week: June 28, 2010

The Markets

Domestic equities saw their second straight week of starting strong and then trailing downward by week's end, depressed in part by weak housing statistics. The decline left the indexes (with the exception of the small-cap Russell 2000) back in the red for the year and investors seeking reassurance from bonds, which helped push down Treasury yields.

Market/Index	2009 Close	Prior Week	As of 6/25	Week Change	YTD Change
DJIA	10428.05	10450.64	10143.81	-2.94%	-2.73%
NASDAQ	2269.15	2309.80	2223.48	-3.74%	-2.01%
S&P 500	1115.10	1117.51	1076.76	-3.65%	-3.44%
Russell 2000	625.39	666.92	645.11	-3.27%	3.15%
Global Dow	1984.48	1824.61	1773.85	-2.78%	-10.61%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.24%	3.12%	-12 bps	-73 bps

Last Week's Headlines

• Congressional leaders agreed on a financial reform package that reconciles the House and Senate versions. Among the provisions of the Dodd-Frank bill are measures that require banks to hold additional capital to cover potential losses and set up separate operations to handle risky derivative trades such as swaps. The so-called "Volcker rule" also would restrict proprietary trading by banks. Derivatives would be regulated for the first time; routine derivatives would be traded on exchanges and nonstandard derivatives would be reported to a central authority. The bill also creates a consumer financial protection bureau, under the authority of the Federal Reserve, to oversee financial products. A federal agency would have the authority to step in and manage the dismantling of a failing bank. Hedge funds would be required to register with the SEC and credit rating firms would be subject to additional federal supervision. The amount of FDIC insurance for bank accounts, which was increased to $250,000 in the wake of the financial crisis, would remain at that level permanently. It also requires mortgage lenders to verify that a borrower's income, credit history, and employment record indicate the ability to repay the loan. Public companies would have to allow shareholders a nonbinding vote on executive compensation. Large banks would pay a fee to help cover the costs of implementing the bill's provisions.
• The Federal Reserve issued a slightly more downbeat assessment of the U.S. economy's prospect, saying Europe's problems have created conditions that are "less supportive of economic growth" here. That makes it even more likely that today's rock-bottom interest rates will continue for some time.
• Existing home sales fell 2.2% in May, according to the National Association of Realtors, though they were up 19% from last May. The report covers completed sales, which would have been initiated before the April 30 contract signing deadline for qualifying for the federal first-time homebuyer tax credit. Meanwhile, according to the Census Bureau, new single-family home sales plummeted 32.7% in May to 300,000, despite mortgage rates that Freddie Mac said were at record lows.
• A drop in orders for civilian aircraft and other transportation-related items cut durable goods orders 1.1% in May, the Census Bureau said. However, excluding transportation, orders for such items as machinery and computer equipment rose 0.9%.
• The G-20 countries agreed to slash their budget deficits in half by 2013, but each will address its spending and revenue dilemmas in its own way.
• The Bureau of Economic Analysis' estimate of first quarter Gross Domestic Product (GDP) was revised downward once again, from 3% to 2.7%.

Eye on the Week Ahead
As the second quarter comes to an end, the fate of the financial reform package will be of interest as leaders try to bring it to a vote in the House this week. And as always, Friday's unemployment numbers will be closely watched.

Key data releases: Personal income/spending (6/28); home prices (6/29); auto sales, manufacturing, construction spending, pending home sales (7/1); unemployment (7/2).

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.

--see disclaimer below--

Week in Review: Markets slump, weighed down by economic news

U.S. economic news

U.S. Home sales plunge
Sales of existing homes fell by 2.2% in May, a disappointment from an anticipated increase of 5%, the National Association of Realtors reported. Still, May's home sales represented a 19% increase from the year-earlier figures. May's sales numbers were influenced by the federal tax credit for homebuyers, which technically expired in April but applies to mortgages that close by the end of June. Meanwhile, sales of new homes, which make up one-tenth of the market, fell to a record low in May, according to the U.S. Department of Commerce. New single-family homes sold at a seasonally adjusted annual rate of 300,000 in May, down 33% from 446,000 in April.


Mortgage rates fall
U.S. residential mortgage rates hit an all-time trough, with 15-year fixed-rate mortgages dipping to 4.13%, with an average 0.6 points, and 30-year mortgages were available for 4.69%, with an average of 0.7 points.


First-quarter growth lowered
The official figure for U.S. economic growth in the first quarter of 2010 was lowered by the U.S. Department of Commerce on Friday, from 3.2% real annual GDP growth to 2.7%. Consumer spending was weaker than previously thought.


Jobless claims decline
Initial claims for jobless benefits decreased by 19,000 to 457,000 for the week ended June 19, a larger-than-expected decline, the U.S. Labor Department reported. The four-week moving average fell to 462,750 last week from 464,250 the week before.


Durable goods orders taper off
Orders for durable goods, designed to last three years or longer, decreased by 1.1% after rising for five consecutive months. However, orders for non-defense capital goods excluding aircraft rose by 2.1%.


Fed holds rates steady
The U.S. Federal Reserve surprised no one by leaving its short-term federal funds target interest rate untouched at 0% to 0.25%. There was a slight change in the wording of the Fed's statement, that "financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad." Projected timing of an initial Fed interest rate hike has been pushed back from fall 2010 to as late as 2012.

U.S. and global corporate news

Nike profit leaps 53%
Nike's fourth-quarter profit was a healthy 53% higher than a year earlier as the athletic shoe maker benefited from streamlined costs and trimmed inventory along with robust sales growth in the United States, Europe, and emerging markets.


Oracle profit rises 25%
Oracle posted strong sales and earnings results on an increase in sales of database and other business software and new revenue from its acquisition of Sun Microsystems. Oracle's revenue rose 39% to $9.5 billion, including $1.8 billion of revenue from Sun products and support services.


Dell forecasts revenue growth
Dell issued a statement ahead of its annual analyst meeting next week, forecasting revenue growth of 14% to 19% for the rest of the fiscal year. Dell, once the world's largest personal computer maker, but now ranked third, also said it expects adjusted operating income to rise 18% to 23%.

Global economic news

China eases USD currency peg
In a move to help escape criticism for manipulating global currency markets, China removed the yuan's two-year peg to the U.S. dollar, allowing it a limited amount of flexibility. It is expected that a stronger Chinese currency will help the exports of other countries, including the United States, become more competitive. The move comes just before this weekend's G-20 meeting in Toronto.


Greek debt costs more to insure
In yet another reflection of market anxiety over Greek debt levels, the cost of insuring Greek sovereign debt against default rose early Friday, reaching a record. Greece's five-year sovereign credit default swaps reached 11.31 percentage points. This means that it would cost $1.131 million annually to insure $10 million of Greek government debt for five years. It implies a 69% probability of default over the next five years.


Germany, France, United Kingdom to levy banks
Governments in Germany, France, and the United Kingdom said they will introduce bank levies to pay for future financial crises, and they will urge their counterparts at the Group of 20 industrial and developing nations to take similar actions at this week's G-20 meeting in Toronto.


German business confidence rises
German business confidence rose in June based on an index of German business sentiment published by Ifo, which reached 101.8 in June from 101.5 in May. Economists had forecast a drop below 101. A sub-index measuring current business conditions was strong, but another index indicating expectations of trade conditions in the next six months declined.


Taiwan raises rates
In a surprise move, Taiwan's central bank raised interest rates, its first such move since June 2008. The Central Bank of the Republic of China (Taiwan) raised its key rates by 12.5 basis points and stated the economy is performing better than anticipated. Taiwan joins numerous Asian neighboring countries in raising rates as the region's robust economies rebound from the recession. Australia, New Zealand, India, Vietnam, and Malaysia have all increased interest rates, while China, Indonesia, Singapore, and the Philippines have taken other actions to tighten monetary policy.

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.

--see disclaimer below--