Week in Review: U.S. markets have strong first quarter amid global uncertainty

Global economic news

U.S. economy creates 216,000 jobs; unemployment rate dips to 8.8%In a sign that the U.S. labor market may be strengthening, the nation’s companies added 216,000 jobs in March, more than the 190,000 gain projected by a number of leading economists. The U.S. Department of Labor reported that the jobless rate fell again in March to a two-year low of 8.8%. The government’s jobs creation figure is even higher than the 201,000 jobs ADP Employer Services estimated were added to U.S. payrolls last month.

Home prices in U.S. drop again in JanuaryThe average price of single-family homes in 20 major U.S. metropolitan areas fell 3.1% from a year ago, according to the Standard & Poor’s/Case-Shiller Home Price Index. January is the sixth month in a row that U.S. home prices have fallen. Eighteen of the twenty markets covered by the survey recorded year-over-year price declines.

Consumer spending in U.S. rises in FebruaryU.S. consumer spending jumped 0.7% in February, the eighth-straight month of increases. In addition, the U.S. Department of Commerce said that personal incomes rose 0.3% for the month. Still, higher consumer prices absorbed a significant portion of the spending increase. After inflation, the increase was a more modest 0.3%.

U.S. Treasury recoups TARP fundsThe U.S. Department of the Treasury reported that money it loaned to banks during the financial crisis has been paid back. The federal bailout and its Troubled Asset Relief Program (TARP) is currently $6 billion in the black. Still, according to published reports, Treasury Secretary Timothy Geithner admitted that the federal government has “more work to do repairing the damage caused by the crisis and strengthening the recovery, but today is an important milestone in our efforts to recover taxpayer dollars as we continue winding down TARP.”

Confidence of U.S. consumers falls from three-year highThe Conference Board’s Consumer Confidence Index fell more than anticipated to 63.4 in March from a revised 72.0 in February. The sharp decline in confidence was driven by a number of global and economic factors, including rising gas and oil prices, the Japan crisis, and ongoing unrest in the Middle East.

America’s CEOs report encouraging outlook for sales, jobsThe Business Roundtable, an association of CEOs at the largest U.S. companies, reported in its first-quarter survey that nearly all its members expect sales to increase over the next six months. More than 60% expect additional investment in their businesses, and over half plan to hire more workers in the next two quarters.

U.S. businesses expand at a faster-than-expected paceThe Institute for Supply Management said its business barometer slipped to 70.6 in March from a reading of 71.2 in February. The index surpassed the 69.6 median projected by economists surveyed by Bloomberg News. An index reading greater than 50 indicates business expansion.

S&P downgrades Greece, PortugalRatings agency Standard & Poor’s lowered its rating of Greek sovereign debt two notches to “BB-” from “BB+,” dropping the country’s debt further into junk territory. S&P also cut Portugal’s senior debt rating by one notch to “BBB-” from “BBB.” The most recent cut follows last week’s two-notch downgrade of Portugal, which is now close to losing its investment-grade status for the first time. The outlook for both countries’ ratings remains negative, according to S&P. Greece has already accepted a three-year plan of emergency help from the European Union and International Monetary Fund. Standard & Poor’s expects Portugal to ask the IMF and the European Financial Stability Facility for a similar bailout package.

Irish banks need additional €24 billionA plan to nationalize Ireland’s banking sector may be imminent after a third round of stress tests revealed that the country’s banks will need an additional capital influx of €24 billion. The stress tests are a condition of the bailout the Irish government agreed to with the European Union and International Monetary Fund in November. With the latest bailout, the total cost of the bank rescue is approximately €70 billion. Ireland’s government also announced plans for an overhaul of the country’s banking system aimed at restoring investor confidence.

Eurozone confidence slips in MarchAn index of executive and consumer sentiment in the 17-nation euro region fell slightly to 107.3 in March from a revised 107.9 in February, the European Commission said. The drop in the confidence measure was larger than economists had forecast, as rising oil prices, Middle East unrest, and Japan’s earthquake resulted in rising pessimism for global growth prospects. February’s reading was the highest for the index since August 2007.

German unemployment falls to lowest level since 1992The number of Germans who were out of work dropped a seasonally adjusted 55,000 to 3.01 million, according to the Nuremberg-based Federal Labor Agency. That is the lowest level since June 1992. Germany’s unemployment rate fell to 7.1% in March from 7.3% the month before.

Global corporate news

Fujitsu says impact of Japan’s earthquake to be in “billions of yen”Following the country’s March 11 earthquake and tsunami, Japanese electronics conglomerate Fujitsu will have to revise its earnings forecasts for the fiscal year ending this month. Fujitsu’s president said the quake’s impact on earnings “will likely exceed several billions of yen.” Fujitsu, which has resumed most of its operations in the quake-hit region, is among several major Japanese companies affected by one of the largest natural disasters in the country’s history.

Harry & David to file for bankruptcy protectionHarry & David announced it is preparing to file for Chapter 11 bankruptcy protection. In a “prearranged” deal with creditors, the specialty gourmet fruit retailer will convert its bond debt to equity and seek to raise additional capital through a new stock sale. The company has been struggling as consumers cut back in the weak economy. In January, the 75-year-old retailer reported that revenue during the critical holiday quarter fell nearly 2%, and last month the company cut approximately 100 jobs.

EBay to buy GSI Commerce for $2.4 billionEBay agreed to purchase e-commerce company GSI Commerce for $2.4 billion, extending eBay’s reach into Internet retailing and intensifying the company’s rivalry with Amazon. GSI’s core business is providing e-commerce infrastructure — e-store technology, payment processing, fulfillment, marketing, and customer service — for more than 180 top brands and retailers.

GE to purchase stake in ConverteamGeneral Electric agreed to pay $3.2 billion in cash for a controlling stake inConverteam, the power conversion company. The acquisition of the French company, which serves a variety of industries including oil and gas companies, is the latest in a string of deals totaling $11 billion over the past six months aimed at expanding GE’s energy business. They have also acquired Dresser Inc., Wellstream Holdings, Lineage Power Holdings, and John Wood Group’s well support division.

Qihoo goes publicChinese Internet company Qihoo 360 went public this week on the New York Stock Exchange, and the company’s shares immediately doubled at the start of trading. The Internet software company, which sells antivirus software and security services, raised more than $175 million in its IPO. Qihoo also makes the second-most-used Internet browser in China, behind Microsoft’s Internet Explorer.

Galaxy reports profit dropGalaxy Entertainment Group said its net profit fell 22% last year in part because of one-time accounting and valuation adjustments. The casino operator, controlled by the family of tycoon Lui Che Woo, reported that net profit totaled HK$898.46 million last year, down from HK$1.15 billion in 2009. Galaxy is moving ahead with plans to open a HK$14.9 billion casino-resort in Macau’s lucrative Cotai area.

The week ahead

• Institute for Supply Management’s Services Index data released Tuesday, April 5
• China’s Consumer Price Index released Wednesday, April 6
• U.S. initial jobless claims data released Thursday, April 7
• U.S. consumer credit data released Thursday, April 7
• Bank of England announcement due Thursday, April 7
• Canada’s Labour Force Survey results due Friday, April 8

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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MARKET WEEK: MARCH 28, 2011

The Markets Investors brushed aside disappointing housing data and debt concerns in Europe to push domestic equities higher for the week. The Dow and S&P 500 regained 12,000 and 1,300 respectively and both small caps and the tech-heavy Nasdaq saw new enthusiasm. That renewed interest in stocks helped send the price of 10-year Treasuries back down as yields rose.

Market/Index 2010 Close Prior Week As of 3/25 Week Change YTD Change DJIA 11577.51 11858.52 12220.59 3.05% 5.55% Nasdaq 2652.87 2643.67 2743.06 3.76% 3.40% S&P 500 1257.64 1279.21 1313.80 2.70% 4.47% Russell 2000 783.65 794.66 823.85 3.67% 5.13% Global Dow 2087.44 2093.63 2166.09 3.46% 3.77% Fed. Funds .25% .25% .25% 0 bps 0 bps 10-year Treasuries 3.30% 3.28% 3.46% 18 bps 16 bps Last Week's Headlines New-home sales plummeted almost 17% in February, hitting the lowest point since record-keeping began in 1963, the Commerce Department said. Sales also were down 28% from the previous February. Hardest hit were sales in the Northeast, now down 50% from a year ago, and the Midwest, down almost 41% in the same time. Sales of existing homes also fell sharply in February, according to the National Association of Realtors®. The 9.6% decline followed three straight months of increases. Though they were 26.4% higher than last July's low, sales were still down 2.8% from February 2010. All-cash purchases hit a record 33% of all sales, and distressed homes sold at a discount represented 39% of total sales. Durable goods orders fell in February, according to the Commerce Department. The 0.9% drop was the fourth decline in five months. New orders for capital goods (other than defense-related equipment and aircraft), which indicate the level of business spending, were down 1.3%. Despite another downgrade of the country's sovereign debt, the Portuguese parliament rejected a proposed combination of tax increases and budget cuts, potentially increasing the need for a bailout from fellow European Union members. The country's prime minister, who proposed the austerity package, resigned and a new government will need to be formed. Also, Moody's downgraded the credit rating of 30 Spanish banks, citing as one reason pressures from a recent deterioration in that country's sovereign debt, which was downgraded earlier this month. The final figure for Q4 gross domestic product (GDP) showed the economy grew at an annualized rate of 3.1%, higher than previously thought and higher than Q3's 2.6%. For all of 2010, the economy grew almost 3%, a vast improvement from 2009's decline of 2.6%. After-tax corporate profits were up 20.4% in 2010 compared to 2009's 5.1% increase. Eye on the Week Ahead Investors will watch to see if the market continues to recover from its recent bruising and extends its upward march. A data-intensive Friday will see new employment, construction, and manufacturing indicators. Key dates and data releases: personal income/spending (3/28); home prices (3/29); unemployment/payrolls, construction spending, U.S. manufacturing (4/1). 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. Equities data reflect price change, not total return. 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--