Week in Review: Market activity light as investors prepare for holidays and set sights on 2011

Global economic news

U.S. economy sees uptick as GDP revised slightly higher
The U.S. gross domestic product (GDP) grew at an annual pace of 2.6% in the third quarter, according to the U.S. Department of Commerce. GDP, the value of all goods and services produced, is the broadest measure of a country's economic activity. While the revised third-quarter GDP figure is slightly higher than the initial reading of 2.5%, it falls below the 2.7% level projected by many economists. The economy grew at a 1.7% annual rate in the second quarter.


Wave of credit downgrades threaten eurozone
The European sovereign debt crisis was on the minds of investors and market watchers around the world as Moody's Investors Service warned that it may lower Portugal's credit rating by as much as two notches. The warning came less than a week after the agency said it may downgrade its rating on Spanish and Greek government debt. On December 17, Moody's slashed Ireland's credit rating five levels to "Baa1" from "Aa2," leaving the country just above speculative grade or junk status. France is also at risk of losing its top "AAA" rating, and Belgium is facing a possible cut. Further credit rating downgrades could make it more costly for eurozone periphery nations to borrow in capital markets.


Existing home sales edge 5.6% higher in November
The National Association of Realtors said that sales of previously occupied homes in the United States increased to a 4.68 million annual rate in November, up 5.6% from October's 4.43 million. It was the third increase in sales of existing U.S. homes in the past four months.


Gas, oil prices up
Increased demand for petroleum has resulted in a 4% jump in gasoline prices since last month while crude oil prices rose above $90 per barrel for the first time since October 2008.


ECB to lend European banks $197 billion
The European Central Bank agreed to meet the liquidity needs of eurozone banks by lending them 149.5 billion euros ($196.8 billion USD) over a period of three months. While the central bank decided against giving 6- and 12-month loans, President Jean-Claude Trichet said that it will keep offering banks as much cash as needed through the first quarter of 2011 to help restore lending in the region.


U.S. initial jobless claims drop again
The U.S. Department of Labor reported that the number of Americans filing new unemployment claims decreased to 420,000 in the week ended December 18. The latest number of filings represents 3,000 fewer claims than the previous week's total.


Americans using less of their income to pay down debt
U.S. household financial obligations as a share of after-tax income fell to 16.78% in the third quarter from 16.97% the previous quarter. The drop indicates that Americans are allocating a smaller portion of their paychecks to paying off personal debt.


Airlines set to record biggest profits in over 10 years
The U.S. Department of Transportation reported that operating profits for airlines in the United States surpassed $7.1 billion in the first nine months of 2010. The figure exceeds the industry's full-year profit figures going back to at least 1999 when airlines reported profits of $6.89 billion for a full 12 months. This year's strong results are due in part to airfares, which are 13% higher than last year. New fees, including baggage fees, have also led to higher profits for the industry. According to the Bureau of Transportation Statistics, the industry collected $2.1 billion in fees during the third quarter alone. The airline industry lost more than $5.5 billion in 2008 at the height of the global recession.

Global corporate news

Global M&A activity jumps 16% in 2010
Deals in emerging markets helped spur a 16% increase in global mergers and acquisitions activity this year. According to preliminary data from Mergermarket, firms in developing countries closed 2,570 transactions worth a total $502.6 billion in the year to date. This figure represents a 42.9% increase over last year's $351.8 billion.

The year's two biggest deals were America Movil's $28.1 billion takeover of Carso Global Telecom and GDF Suez Energy International's $27.3 billion union with International Power. As more companies are seeking ways to spend their significant cash piles outside of their home markets, many industry analysts expect to see a continued upswing in M&A activity in emerging markets in 2011.


Other mergers and acquisitions news
Russian potash fertilizer producers OAO Uralkali and OAO Silvinit announced a long-anticipated merger earlier in the week. Uralkali reported that it is buying a 20% stake in Silvinit for $1.4 billion. The union will create a company with a market capitalization of nearly $24 billion.

Canada's Toronto-Dominion Bank agreed to purchase Chrysler Financial, the auto lender owned by private equity firm Cerberus Capital Management, for $6.3 billion. As part of the deal, Cerberus will retain about $1 billion of non-auto assets. The deal will place TD Bank in the top-five North American auto lenders. Chrysler Financial is no longer affiliated with the automaker whose name it bears.


Earnings update


ConAgra Foods reported a drop in profit for its fiscal second quarter ended November 28. Profit fell 16%, dropping to $200.9 million from $239.7 million a year ago. Net sales increased 2% to $3.16 billion, exceeding analysts' projections.


Adobe recorded a profit of $268.9 million for its fiscal fourth quarter ended December 3, up from a year-earlier loss of $32 million. The maker of Photoshop and Illustrator design software cited strong product sales and subscription revenue as reasons for its strong performance.


Walgreens said its profit for the quarter ended November 30 was $580 million, up 19% from the $489 million profit the drugstore chain reported a year earlier.


Dillard's appears to be on the verge of a comeback following a strong third quarter. The department store chain posted net income of $14.4 million, up from $8 million a year ago. Dillard's, after nearly three years of financial troubles, seems to have turned things around by shuttering stores that did not report strong sales numbers, doing a better job tracking inventory, and buying higher quality products.

The week ahead

• Japan's CPI, industrial production figures, and unemployment rate released Monday, December 27
• S&P/Case-Shiller Home Price Indices for 20 U.S. cities released Tuesday, December 28
• France's GDP released Tuesday, December 28
• U.S Conference Board's Consumer Confidence Index released Tuesday, December 28
• Initial jobless claims figures for U.S. released Thursday, December 30
• Chicago Purchasing Managers Index released Thursday, December 30
• Italy's ISAE Manufacturing and Mining Survey released Thursday, December 30
• Cal-Maine Foods, Redbook earnings released

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 information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell, or 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. Full holdings are also available on the individual Fund Profile tab in the Products and Performance section of mfs.com.
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Past performance is no guarantee of future results.

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

Week in Review: Markets trend slightly upward on signs of growth

U.S. economic news

U.S. Congress passes $800 billion tax cut
After much negotiation, Congress approved an $858 billion bill, with $801 billion in tax cuts and $57 billion for extended unemployment insurance. The bill had bipartisan support as both Democratic and Republican lawmakers sought to prevent the across-the-board tax increase that would have occurred with the expiration of Bush administration tax cuts set for December 31.

Fed reaffirms plan to buy bonds
The Fed restated its intention to buy $600 billion in government securities in the next half year in an ongoing effort to stimulate the U.S. economy, bring down high unemployment, and avert deflation.


U.S. retail sales rise again; economic growth revised upward
Retail sales rose for the fifth-straight month in the United States, according to the U.S. Department of Commerce, matching their highest level since November 2007, before the recession began. Retail sales increased by 0.8% in November, and the October sales figure was bumped up to 1.7% growth from a previously estimated 1.2% increase. The stronger-than-expected retail sales prompted Macroeconomic Advisers to boost its tracking forecast for fourth-quarter gross domestic product to 3.1% from 2.7%.

Eurozone's weakest economies struggle
Despite signals of eurozone optimism this week, negative developments focused on the struggling economies of Spain, Greece, and Ireland. Moody's Investors Service downgraded Ireland's debt by five levels, to Baa1 from Aa2, a drop that reflected that the country's staggering banking losses and vulnerability to further economic weakness. Moody's also announced that it would put Spain's Aa1 government bond ratings on review for a possible downgrade. Meanwhile, Greek workers staged a nationwide general strike in protest against government austerity measures. Transportation was almost brought to a standstill. Hundreds of flights were cancelled and ferry and rail services suspended. Government offices, courts, hospitals, and schools were also affected.

EU summit produces accord
At an economic summit, European Union leaders agreed to create a mechanism that would contain future debt crises through cross-border guarantees between member states. The agreement led to strengthening of the euro against 15 of its most-traded counterparts.

German business confidence soars
German business confidence rose to its highest level since 1991, with the Munich-based Ifo institute's business climate index hitting 109.9 in December, up from 109.3 in November. Germany's unemployment rate fell for the seventeenth straight month in November, reaching its lowest rate - 7.5% - since April 1992.

German investor confidence also rose in December, with the German ZEW expectations survey climbing for the second month in a row, supported by increasingly broad-based economic growth. Expectations in the survey rose to 4.3 from 1.8 in November.


European economic growth uneven
Industrial production across the 16-country Eurozone grew 0.7% in October, the most recent month reported, and 6.9% annually, according to Eurostat, the European Commission's economic statistics agency. Also, while employment contracted 0.7% in both Greece and Spain during the third quarter, it grew 0.3% in Germany and 0.2% in France over the same period.

India, China forge stronger ties
A high-profile visit to India by Chinese Premier Wen Jiabao and 400 business executives set the stage for $20 billion in announced business deals between China and India. The countries set a $100 billion target for bilateral trade by 2015. India-China trade is expected to exceed $60 billion this fiscal year, up from $42 billion for the last fiscal year.

Inflation high in both India and China
India's annual inflation rate eased in November but remained elevated at 7.48%, down from 8.58% the previous month. Meanwhile, China's consumer price index increased 5.1% in November from a year earlier. China's government said it would raise its inflation target for 2011 to 4% from 3% this year. Observers noted that this could be a sign of greater tolerance for inflation, which could mean less aggressive tightening going forward.


U.S. jobless claims down
The number of U.S. workers filing initial claims for unemployment insurance fell by 3,000 to 420,000 in the week ended December 11, the U.S. Department of Labor reported. The four-week average confirmed the positive trend, declining by 5,250 to 422,750, its lowest level since August 2, 2008.


U.S. inflation tame
The U.S. Consumer Price Index increased 0.1% in November from October. The core CPI, excluding food and energy costs, also rose 0.1%. For the 12 months ended in November, prices rose 1.1% overall and 0.8% for the core CPI. This indicates inflation is not an immediate concern for the Fed, which frees it to pursue more stimulative action.

Global economic news

FedEx raises earnings outlook, is optimistic about global economy
Despite an 18% decline in quarterly profit, FedEx raised its annual earnings forecast on optimism about global economic trends. The courier, the world's largest international package-shipping firm, is viewed as an economic bellwether. Its quarterly results were brought down by legal charges and restructuring costs, but its international air freight business had improved demand and pricing.

Oracle posts robust profits
Oracle's second-quarter earnings rose 28% on strength in the business-software giant's traditional software business and its new hardware line. The company attributed the robust results to strong revenue growth and disciplined business management.


National Semiconductor earnings soar
Sharply higher sales and improved profit margins led National Semiconductor to a 78% jump in second-quarter profit. However, the chip maker issued a lukewarm revenue outlook.


RIM's profit soars on Blackberry sales
Canadian Blackberry maker Research in Motion's quarterly earnings leapt 45% as the sales volume of the company's popular smart phones rose 40% from a year earlier in the most recent quarter. However, the company faces tough competition from Apple's iPhone and Google's Android platform.


Bank of Montreal, Canada's fourth-largest bank, said it will acquire Marshall & Isley, a Milwaukee, Wisconsin-based bank, in a $4.1 billion share swap that will double BMO's presence in the U.S.

The week ahead

• Third quarter U.S. GDP estimate released Wednesday, December 22
• Final figures for third quarter UK GDP released Wednesday, December 22
• U.S. durable goods orders for November due out Thursday, December 23
• University of Michigan Consumer Sentiment Index released Thursday, December 23
• Nike, Carnival, and Walgreen's earnings reports due

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 information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell, or 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. Full holdings are also available on the individual Fund Profile tab in the Products and Performance section of mfs.com.


Past performance is no guarantee of future results.

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