Week in Review: World watches as Egypt crisis pushes oil prices higher

Global economic news

Biggest U.S. companies report strong fourth-quarter profitsApproximately 50% of U.S. companies have reported fourth-quarter earnings, and results have been exceptionally strong. Excluding financial firms, weighted earnings for the companies in the Standard & Poor’s 500 Stock Index are up 17% on an as-reported basis for companies representing 54% of the group’s market value. S&P forecasts that when all 500 companies report their fourth-quarter earnings, they will show an increase of approximately 32% from a year earlier.

ISM’s U.S. non-manufacturing index unexpectedly jumpsThe Institute for Supply Management’s index of nonmanufacturing businesses rose to 59.4 in January from 57.1 the previous month.

U.S. home prices continue to drop
Home prices in all of the 28 major U.S. metropolitan areas tracked by The Wall Street Journal’s quarterly survey fell in the fourth quarter of 2010 compared with a year earlier. Home values fell the most in cities already rocked by the housing bust, including Atlanta, Chicago, Miami, and Orlando, according to data from real estate Web site Zillow.com. Several markets that had previously escaped the housing market downturn, such as Seattle, Washington, and Portland, Oregon, also saw significant price declines over the same period.

U.S. economy adds fewer-than-expected jobs last month
The U.S. economy added just 36,000 jobs in January, falling below economists’ expectations. Still, the unemployment rate dropped to 9.0% last month. The U.S. Department of Labor also revised payroll numbers for all of 2010. Overall, there were 215,000 fewer jobs added last year than previously reported.

Americans spend at fastest pace since 2007
The U.S. Department of Commerce reported that consumer spending in the United States rose 0.7% in December, the sixth-straight monthly increase. Consumer spending increased at a 3.5% rate for all of 2010, the most since 2007.

Sales of municipal bonds fall to 10-year lowMunicipal bond sales in January fell to their lowest level in more than 10 years. Through January 28, states, cities, and other municipalities issued nearly $12 billion of bonds, according to data provider Thomson Reuters. That figure is down approximately 63% from the same month a year ago and the smallest monthly total since January 2000, when $9.6 billion of debt was sold.

Eurozone inflation accelerates at fastest pace since late 2008Despite eurozone inflation accelerating in January at its fastest rate since late 2008, the European Central Bank voted to keep its main lending rate at a record-low 1% for a 21^st straight month. Saying inflation risks are “broadly balanced,” ECB President Jean-Claude Trichet allayed fears among investors that the central bank was planning to raise interest rates at least in the short term. Eurozone inflation was at 2.4% in January, moving further above the ECB’s target rate of 2.0%.

Global food price index hits record high
The United Nations said that its monthly food price index reached its highest level since the organization began keeping records in 1990. The UN’s Food and Agriculture Organization Index rose to 231 points in January. The seventh consecutive monthly increase for the index occurred partly because of higher global prices for cereal, sugar, and vegetable oils. The FAO index is a measure of the monthly change in international prices of a basket of commodities. It is closely watched by investors and analysts as a global benchmark for food price trends.

Global corporate news

Nippon Steel, Sumitomo Metal to merge
Nippon Steel and Sumitomo Metal Industries, Japan’s number-one and number-three steelmakers by output, agreed to merge by 2012. The merger would create the world’s number-two steelmaker, with combined revenue of 4.8 trillion yen ($58.5 billion USD) as of the fiscal year that ended last March. The deal, the first major consolidation in the Japanese steel industry in a decade, will result in stronger competition against rival companies in China and India.

Time Warner to purchase NaviSite
Time Warner Cable announced that it is purchasing NaviSite for approximately $230 million. NaviSite hosts applications on remote servers. The move will help Time Warner offer more Web-based services to its business customers. The purchase also gives Time Warner access to NaviSite’s 1,200-plus customers.

Exxon profit surges 53%, tops Wall Street projections
Exxon Mobil’s profit rose 53% in the fourth quarter on higher oil prices and a jump in production. The world’s largest publicly traded oil company posted earnings of $9.25 billion, up from $6.05 billion a year earlier.

Merck posts fourth-quarter loss, forecasts lower-than-expected 2011 earnings
Merck, the second-largest U.S. drugmaker, reported a fourth-quarter net loss of $531 million after taking a $1.7 billion charge to write down its experimental blood thinner. The company, which also forecast 2011 earnings that were below analysts’ estimates, said it is moving ahead with plans to cut 15,000 jobs and close facilities to save $3.5 billion annually by 2012.

New York Times sees drop in profit
New York Times’ fourth-quarter profit decreased 26% from a year ago. The publisher posted a profit of $67.1 million, down from $90.9 million a year earlier. Still, core earnings for the company increased as costs dropped at a faster rate than revenue.

Dow Chemical profit nearly triples
Dow Chemical said its profit rose to $511 million from $172 million a year ago as the chemical giant benefited from increased demand and price increases. Revenue increased 10% to $13.8 billion.

The week ahead

• U.S. consumer credit report released Monday, February 7
• China unemployment data released Tuesday, February 8
• Australia labor force survey released Wednesday, February 9
• France, Italy industrial production figures released Thursday, February 10
• Consumer Sentiment Index for U.S. released Friday, February 11
• International trade figures released Friday, February 11
• Japan GDP figure released Sunday, February 13

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.

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New rules offer easier cost basis reporting

Brokers must track and report cost basis

If you're contemplating selling stock in 2011 and beyond, you should be aware of new federal regulations that give you more flexibility in managing the tax impact of your investment decisions. The new regulations, which went into effect January 1, 2011, require brokers to track your cost basis. Even better, they allow you to determine how your brokerage firm reports the cost basis of a sale. That can be helpful if you want to minimize the amount of gain on which you'll owe federal income tax or maximize a capital loss.

Your cost basis represents the original purchase price of a security plus any commissions or other fees; your adjusted cost basis is that cost basis adjusted for a variety of factors such as stock splits, corporate acquisitions or spinoffs, and reinvested dividends. Until now, reporting the gain or loss from your investments has been your responsibility, and could be very challenging for the average investor. The new regulations should make it easier to record your capital losses or gains accurately on your federal income tax form.

The Emergency Economic Stabilization Act of 2008 requires that, as of January 1, 2011, U.S. broker-dealers and other financial intermediaries must not only track the adjusted cost basis of their investors' accounts, but also report that basis to investor clients on their 1099 forms and to the Internal Revenue Service. The rules will be implemented over time. They'll apply to shares of individual stocks you buy after January 1, 2011, to investments in mutual funds and dividend reinvestment plans after January 1, 2012, and to bonds, options and other securities bought after January 1, 2013. Shares acquired before January 1, 2011 are exempt from the new rules, as are securities held in retirement accounts.

You can tailor your reporting method to suit your tax situation

The new regulations allow you to determine in advance what accounting method you wish to use for each sale of stock after January 1, 2011. Most broker-dealers will designate a default option to use if you do not specify a method. That default will typically be the so-called FIFO method (an acronym for "first in, first out"), which means that the first shares of a security purchased are considered the first shares sold. However, your broker might also allow you to specify LIFO ("last in, first out") or designate specific shares as the ones sold. In some cases, such as shares bought through a direct reinvestment program, using an average cost basis for all shares may be most convenient (most mutual fund companies already employ this method of calculating cost basis).

You may be able to put in a standing order specifying the method you want to use for all trades, or choose on a case-by-case basis; you may also authorize your financial professional to make that decision for you. The rules permit investors to change the designated method for a given trade until the settlement date (the date on which money actually changes hands, which for a typical stock sale is three days after execution of the trade). After the trade settles, you cannot change your mind about the method used. Brokers also will be required to report losses that are disallowed as a result of a wash sale (which occurs when shares are sold and then repurchased within 30 days).

Because the new regulations don't apply to investments purchased before January 1, 2011, you'll still need to do your own calculations on those transactions. The cost basis information will be included on the 1099 form you receive from your broker for tax year 2011.

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Health Insurance Reform in 2011

Health Insurance Reform in 2011

The Patient Protection and Affordable Care Act (PPACA), signed into law in 2010, makes significant changes to our health care delivery system. Some of these reforms took effect in 2010 while many others take place in 2011. The following is a brief description of some of the most important provisions of the health care reform legislation that take effect this year.

• Individual and group health insurance plans are required to extend dependent coverage for adult children up to age 26. While this requirement was effective November 2010 for active employees, enrollment elections made during the 2011 open enrollment period will be effective on January 1, 2011.
• The cost of over-the-counter drugs not prescribed by a doctor can no longer be reimbursed through a Health Reimbursement Account or a health Flexible Spending account, nor can these costs be reimbursed on a tax-free basis through a Health Savings Account or Archer Medical Savings Account. Also, the additional tax on distributions from health savings accounts or Archer MSAs that are not used for qualified medical expenses increases to 20%.
• Medicare Part D participants will receive a 50% discount on brand-name prescriptions filled in the coverage gap (i.e., the donut hole) from pharmaceutical manufacturers, and federal subsidies for generic prescriptions filled in the coverage gap will start to be phased in.
• Health plans that do not spend at least a minimum percentage of premiums (85% for plans in the large group market and 80% for plans in the individual or small group markets) on health care services must provide a rebate to consumers.
• Certain preventive services covered by Medicare are no longer subject to cost-sharing (co-payments); the deductible is waived for Medicare-covered colorectal cancer screening tests; and Medicare now covers personalized prevention plans including a comprehensive health risk assessment.
• High income ($85,000 for individuals, $170,000 for married filing jointly) enrollees in Medicare Part B and Part D coverage will likely see their premiums increase. The income thresholds used to determine Medicare Part B and Part D premiums for higher income individuals is frozen at 2010 income rates through 2019 and will not be adjusted for inflation. Also, the federal subsidy for high income Part D participants is reduced, resulting in increased premiums based on income levels that exceed the applicable threshold.
• Medicare Advantage (MA) plans can no longer impose higher cost-sharing for some Medicare-covered benefits than would be imposed by traditional Medicare Parts A or B insurance. Also, Medicare Advantage plans cannot exceed a mandatory maximum out-of-pocket amount for Medicare Parts A and B services. The maximum amount in 2011 is $6,700, but MA plans can voluntarily offer lower out-of-pocket amounts. Also, the annual enrollment period for MA plans is changed to October 15 to December 7 each year beginning in 2011 for plan year 2012.
• Community Living Assistance Services and Supports Program (CLASS) is to be established to provide national long-term care insurance funded by voluntary participant premiums that can be paid through payroll deductions.
• The disclosure of the nutritional content of standard menu items offered through chain restaurants and vending machines is required.
• The requirement that employers report the total value of employer-sponsored health benefits on employees' W-2s was to begin in 2011. However, the IRS has deferred this requirement for 2011 so employers will not be subject to penalties for failure to meet this requirement.

These changes may impact your health insurance benefits and costs. To learn more about health care reforms occurring in 2011, consult with your financial professional.

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