Week in Review: Stocks erase gains as earnings season, economic data fail to impress

U.S. economic news

Fed downgrades U.S. growth assessment
U.S. Federal Reserve Board officials downgraded their expectations for the U.S. economy and said that more central bank action might be necessary if economic conditions were to worsen appreciably. Fed officials said they expect growth to be slower this year than previously expected and inflation to remain subdued through 2012. They also estimated the job market would continue to deteriorate through 2012.

Inflation muted
U.S. inflation remained muted in June; but the core measure that excludes the volatile food and energy prices posted its largest gain since October 2009. The seasonally adjusted consumer price index slid 0.1% last month after a decline in energy prices. Core consumer prices, which are closely watched by the Fed, were up 0.2% as prices for apparel, medical care, and cigarettes rose.

U.S. data shows U.S. economic recovery losing momentum
The recovery in U.S. manufacturing lost momentum in July, according to various surveys. The news intensified fears about the health of the U.S. economy. The Philadelphia Fed index of manufacturing fell, as did the New York Fed's Empire State index. The data suggest that manufacturing is still growing but not fast enough to create many jobs. That being said, the number of people filing for unemployment insurance fell by a seasonally adjusted 29,000 to 429,000 for the week ended July 10.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell more than expected in July as it reached the lowest level in a year. A lack of confidence could further restrain consumer spending, which accounts for 70% of the economy, and limit the speed of the economic recovery.
U.S. exports rose 2.4% in May from April, and imports increased by a stronger 2.9%, pushing the U.S. trade deficit to its widest level in 18 months. The worse-than-expected deficit prompted some economists to lower their U.S. growth estimate as the deficit suggests that the U.S. produced less than had been anticipated.
Retail sales fell in June, one month after businesses began increasing inventories to put more products on their shelves. Typically inventories grow during a recovery as businesses prepare for more sales.

U.S. and global corporate news

BofA and Citigroup beat earnings estimates
Bank of America beat estimates as pressure from overdue loans abated and the company benefited from lower credit costs and the sale of noncore assets. Profits increased 3.1% for the quarter even as revenues declined. Citigroup's profit dropped 38% as stock and bond trading revenue fell but still beat analysts' estimates.

GE ends nine-quarter losing streak
General Electric's profit rose 14% in the April-to-June period, ending a nine-quarter losing streak. The company benefited from the stabilization of its GE Capital unit and improvements in its health care division.

Mattel's profits more than double
Mattel's profits more than doubled as sales and margins improved, but the toy company's results still fell short of expectations.

Intel and Google underline tech recovery
Intel swung to a profit of nearly $3 billion as sales soared 34%. Google's earnings missed estimates even though its profits and revenues increased amid a broad recovery in online advertising. However, its search business showed signs of slowing growth.

Global economic news

Chinese economy slows
China's economic growth rate slowed to 10.3% in the second quarter as government efforts to cool the housing markets and infrastructure investment took hold. Housing prices in China fell in June for the first time in 16 months, marking a long-awaited turnaround in the nation's overheated market.

Moody's downgrades Portugal
Moody's downgraded Portugal's debt rating two notches to A1 and cited the weak growth and climbing debt levels as the cause.

Eurozone posts larger-than-expected deficit
The eurozone posted a larger-than-expected trade deficit in May as imports rose more than exports. The deficit was €3.4 billion compared with a €300 million surplus in April. The figures show that trade flows involving eurozone nations have picked up sharply from last year, when flows seized up in response to the financial crisis and global recession. However, the deficit suggests that trade may not make a large contribution to eurozone growth despite the weakness of the euro.

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--