Market Week: March 29, 2010

The Markets

Inching upward: Equities markets seemed to digest the passage of the health care reform bill relatively well; they inched upward for the fourth consecutive week, and the Dow hit an 18-month high Wednesday. Bond markets didn't seem quite as sanguine about the level of debt that might be required. Prices for U.S. Treasuries fell as investors demanded higher yields at last week's auctions.

Market/Index	2009 Close	Prior Week	As of 3/26	Week Change	YTD Change
DJIA	10428.05	10741.98	10850.36	1.01%	4.05%
NASDAQ	2269.15	2374.41	2395.13	.87%	5.55%
S&P 500	1115.10	1159.90	1166.59	.58%	4.62%
Russell 2000	625.39	673.89	678.97	.75%	8.57%
Global Dow	1984.48	2001.01	2010.28	.46%	1.30%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.70%	3.86%	16 bps	1 bps

Last Week's Headlines

• Though home resales were 7% above last year's numbers at this time, they still declined 0.6% in February from the previous month. That's the third monthly decline, according to the National Association of Realtors, and suggests that the extended deadline for the homebuyers tax credit (now April 30) has lured few buyers.
• In case you somehow managed to sleep through last week, President Obama signed the hotly debated Patient Protection and Affordable Care Act (aka the health care bill).
• New-home sales also declined in February, according to the Commerce Department. The 2.2% drop put sales 13% below this time last year. It was the lowest annual rate of sales since recordkeeping began in 1963.
• Durable goods orders such as autos and capital equipment rose 0.5% in February, according to the Department of Commerce. It was the third straight month of increases. Excluding aircraft and defense spending, the number was even better, rising 1.1%.
• The final number for Q4 Gross Domestic Product (GDP) was 5.6%--slightly lower than the Bureau of Economic Analysis' previous estimate, but still higher than the previous quarter's 2.2% growth.
• Fitch Ratings downgraded Portuguese government bonds from AA to AA-, fanning fears about the overall quality of Eurozone sovereign debt. However, the European Union agreed to a joint assistance program with the International Monetary Fund to help Greece deal with its sovereign debt burden.
• Concerns about the level of U.S. debt and speculation in interest rate swaps also hit Treasury bonds, which saw relatively weak demand at this week's auctions.

Eye on the Week Ahead

As the quarter comes to an close this week, Friday's unemployment and payroll data will be key. However, the following Monday will be investors' first opportunity to react to the news, since U.S. markets will be closed for Good Friday. Also, the bond market will keep an eye on the end of the Treasury Department's program of purchasing mortgage-backed bonds.

Key data releases: Personal income/spending (3/29); home prices (3/30); manufacturing, construction spending (4/1); unemployment (4/2).

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--

The Hiring Incentives to Restore Employment (HIRE) Act

March 18, 2010, President Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act. The Act gives employers a temporary payroll tax exemption for qualifying new hires plus a tax credit for retaining new employees. The Act also temporarily extends increased Internal Revenue Code (IRC) Section 179 expensing limits.

Payroll tax exemption

Employers who hire a qualified new employee after February 3, 2010, will generally be exempt from paying the Social Security (Old Age, Survivors, and Disability Insurance, or "OASDI") portion of the FICA employment tax on wages paid to the individual after March 18, 2010, and before January 1, 2011. To qualify, the new employee must certify that he or she has not been employed for more than 40 hours during the 60-day period ending on his or her date of hire, and the new employee can't be hired to replace another employee (unless the other employee separated voluntarily, or was terminated for cause). Also, the new employee can't be related to the employer. Most employers are eligible--the payroll tax exemption generally applies to any employer other than the federal government, or state and local governments.

For wages paid prior to April 1, 2010, that would otherwise qualify for the payroll tax exemption, the tax benefit comes in the form of a second quarter credit--employers must pay the regular amount of Social Security tax on these wages, but the amount by which an employer's payroll tax would have been reduced is treated as a payment against tax in the second quarter of 2010.

Tax credit for retaining new hires

If an employer hires an individual who qualifies for the payroll tax exemption described above, continues to employ the individual for at least 52 consecutive weeks, and the individual's wages during the last 26 weeks of the 52-week period equal at least 80 percent of his or her wages during the first 26 weeks, the employer will qualify for an additional business tax credit. The credit is calculated individually for each qualifying employee, and is available for each employee in the taxable year in which the employee first satisfies the 52-consecutive-week employment period. The per-employee credit amount is equal to 6.2 percent of the wages paid to the employee during the 52-week period, up to a maximum of $1,000.

IRC Section 179 expensing

The 2009 limits relating to IRC Section 179 expensing are extended for one year, to taxable years beginning in 2010. As in 2009, the maximum amount that a taxpayer may expense is $250,000 of the cost of qualifying property placed in service for the taxable year. This amount is reduced by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $800,000.

--see disclaimer below--

First-time in history… Social Security Will Payout More than it Receives in 2010!

While states like Florida, Texas and California are contemplating changing their Teacher Retirement System benefits to remain solvent, other states also are debating what to do about their budget shortfalls. Those states that offer their employees both Social Security benefits and retirement programs are carefully looking at the government’s recent report on Social Security.  

The Social Security Administration just released a report that the system this year will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office.

Stephen C. Goss, chief actuary of the Social Security Administration, said retirees would keep receiving their checks as usual. The problem is that payments have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned. At the same time, the program’s revenue has fallen sharply, because there are fewer paychecks to tax.

 

Is this the Tipping Point That Results in Benefit Cuts?

Analysts have long tried to predict the year when Social Security would pay out more than it took in because they view it as a tipping point — the first step of a long, slow march to insolvency, unless Congress strengthens the program’s finances.

 

“When the level of the trust fund gets to zero, you have to cut benefits,” Alan Greenspan, former chairman of the Federal Reserve Board.

Social Security’s annual report last year projected revenue would more than cover payouts until at least 2016 because economists expected a quicker, stronger recovery from the crisis. Officials foresaw an average unemployment rate of 8.2 percent in 2009 and 8.8 percent this year, though unemployment is hovering at nearly 10 percent.

Although Social Security is often said to have a “trust fund,” the term really serves as an accounting device, to track the pay-as-you-go program’s revenue and outlays over time. Its so-called balance is, in fact, a history of its vast cash flows: the sum of all of its revenue in the past, minus all of its outlays. The balance is currently about $2.5 trillion because after the early 1980s the program had surplus revenue, year after year.

Now that accumulated revenue will slowly start to shrink, as outlays start to exceed revenue. By law, Social Security cannot pay out more than its balance in any given year.

A $29 Billion Shortfall This Year

Mr. Goss, the actuary, emphasized that even the $29 billion shortfall projected for this year was small, relative to the roughly $700 billion that would flow in and out of the system. The system, he added, has a balance of about $2.5 trillion that will take decades to deplete. Mr. Goss said that large cushion could start to grow again if the economy recovers briskly.

 

Indeed, the Congressional Budget Office’s projection shows the ravages of the recession easing in the next few years, with small surpluses reappearing briefly in 2014 and 2015.

After that, demographic forces are expected to overtake the fund, as more and more baby boomers leave the work force, stop paying into the program and start collecting their benefits. At that point, outlays will exceed revenue every year, no matter how well the economy performs.

--see disclaimer below--

Week in Review: Stocks steady after EU backs IMF aid plan for Greece

U.S. economic news

Housing sector could be drag on U.S. recovery

The U.S. Department of Commerce revised its estimate of U.S. gross domestic product downward to a 5.6% annual rate for the fourth quarter of 2009. Even so, the numbers showed that the U.S. economy grew the most in six years. The GDP report also showed that corporate earnings increased 8%, which was the biggest year-over-year gain in 25 years.

Durable goods orders rose in February for the third month, while inventories and backlogs climbed by the most in a year. The rise is an indication that the manufacturing rebound will continue to power the U.S. recovery.

In February new home sales unexpectedly fell 2.2% to record lows as blizzards, unemployment, and foreclosures kept buyers away. These sales have suffered as consumers have gravitated to heavily discounted existing or foreclosed homes. New home sales are now 6.4% below their lows of last year, while sales of previously owned homes are up 10.8% from last year's low. Sales of previously owned homes fell 0.6% from January and were below the levels seen last fall, when the expected expiration of a home-buyer tax credit sparked a flurry of buying.

U.S. and global corporate news

Wall Street firms suspected in municipal bond probe; Tiffany's profits double; Lukoil pulls out of Iran


JPMorgan Chase, Lehman Brothers Holdings, and UBS were among more than a dozen Wall Street banks and investment firms suspected of involvement in bid rigging and price fixing in the municipal derivatives market, according to documents filed in a U.S. Department of Justice criminal antitrust case.


Tiffany & Co. reported that its fourth-quarter profits more than doubled as sales climbed. The jeweler also benefited from the absence of a restructuring charge that it paid last year. The company announced its plans to open 17 stores this year.

The Russian oil company OAO Lukoil Holdings booked a $63 million impairment loss after U.S. sanctions against Iran forced it to abandon its Anaran project in Iran. Lukoil also said that its full-year net profit fell 23% because of lower oil prices. Lukoil's statement comes after a string of Western companies, including Royal Dutch Shell and Ingersoll-Rand, said they would abstain from signing oil contracts as new sanctions against Iran loom.


Bertelsmann AG, Europe's largest media company, posted its first net loss in decades because of a decline in advertising markets and higher charges. The closely held company posted a net loss of 82 million euros in 2009 after a net profit of 142 million euros in 2008.

Global economic news

European leaders this week put the International Monetary Fund on standby to help Greece out of its debt crisis. The move is in opposition to the European Central Bank's call that Europe solve the crisis on its own. Officials have endorsed a Franco-German proposal to give Greece a mix of IMF and bilateral loans at market interest rates. Earlier in the week, the euro fell to a 10-month low as European leaders struggled to find a solution to Greece's financial crisis.

Fitch Ratings cut Portugal's credit grade to "AA-" with a negative outlook for the first time. In a statement, Fitch said that a "sizable fiscal shock against a backdrop of relative macroeconomic and structural weakness has reduced Portugal's creditworthiness." Fitch also said that the prospects for Portugal's economic recovery are weaker than its 15 European Union peers.

Japan's consumer prices fell for a twelfth month in February. The decline puts additional pressure on the Bank of Japan to do more to end deflation, which is hurting the country's economic recovery.


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 Summary: March 22, 2010

The Markets

After eight straight up days, the Dow finally caught up with the other domestic indexes in reaching a new year-long high. Only the small cap Russell 2000 slipped this week, though trading volume was once again lackluster and all of the indexes stumbled slightly on Friday.

Market/Index	2009 Close	Prior Week	As of 3/19	Week Change	YTD Change
DJIA	10428.05	10624.69	10741.98	1.10%	3.01%
NASDAQ	2269.15	2367.66	2374.41	.29%	4.64%
S&P 500	1115.10	1149.99	1159.90	.86%	4.02%
Russell 2000	625.39	676.59	673.89	-.40%	7.76%
Global Dow	1984.48	1989.34	2001.01	.59%	.83%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.71%	3.70%	-1 bps	-15 bps

Last Week's Headlines

• A crucial vote in the House of Representatives moved the hotly debated health care reform bill closer to a Presidential signature that could come as soon as this week.
• Industrial production was up only 0.1% in February. That was much lower than January's 0.9% increase, but the Federal Reserve Board attributed at least some of that decline to bad weather in the Northeast and South. Even so, production was up 1.7% from a year ago, though the nation used slightly less of its manufacturing capacity (72.7%).
• February's blizzards also sidelined residential builders. Fewer new projects in the South (down 15.5%) and Northeast (-9.6%) helped cut housing starts nationwide by 5.9% from the previous month. The biggest decline was in multifamily housing, the U.S. Department of Commerce said; starts of buildings with five or more units fell 43.1%.
• The Federal Reserve Board's Open Market Committee left its target interest rate stable and gave no indication of changing its intention to end its purchases of mortgage-backed securities by the end of the month.
• Inflation at the wholesale level dropped 0.6% in February from the month before, led by lower energy prices. However, the Producer Price Index was up 4.4% year over year, according to the Bureau of Labor Statistics. Meanwhile, February's Consumer Price Index (CPI) was unchanged from January, putting the annual inflation rate at 2.1%. Excluding volatile food and energy prices, annual consumer inflation was at its lowest level (1.3%) since this time six years ago.
• The Conference Board's Index of Leading Economic Indicators was up 0.1% in February. That's its 11th straight increase, though the rate of improvement has begun to moderate.

Eye on the Week Ahead

As the end of the quarter next week draws near, institutional investors will begin fine-tuning their portfolios. Also, investors doubtless will assess the impact of the health care bill vote on companies in industries such as insurance, health care and pharmaceuticals.

Key data releases: Home resales (3/23); new-home sales, durable goods orders (3/24); final Q4 GDP (3/26).

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: Stocks gain as investors watch central banks craft stimulus exit strategies

U.S. economic news

Fed signals rates will remain unchanged; inflation stable
The Fed signaled this week that the recovery is not yet strong enough to stoke inflation or justify higher borrowing costs. While the central bank said it will end purchases of $1.25 trillion worth of mortgage-backed securities, which has been one of its main supports for the U.S. economy, the Fed did indicate it will be at least several more months before it raises short-terms rates from near-zero levels. News of tame inflation this week backed up the Fed’s assessment. The cost of living was unchanged in February, restrained by rents and cheaper gasoline. The core Consumer Price Index rose 0.1% in February, capping the smallest gain since 2004.

Gradual improvement in the labor market
Last week, for the third week in a row, fewer Americans filed first-time claims for jobless benefits. Initial jobless claims were decreased by 5,000 in the week ended March 13. A sustained increase in payrolls is still needed for consumer spending, which accounts for about 70% of the economy, to jumpstart growth. Other data this week included reports that the index of U.S. leading indicators, rose 0.1% in February, the smallest gain in almost a year and that manufacturing in the Philadelphia area expanded at a faster pace in March than February.

U.S. and global corporate news

Boeing said it would boost aircraft production amid an expected increase in demand. The news caused industrial stocks to rally on Friday. The company announced plans to increase production of its 777 and 747 aircraft earlier than expected amid increasing demand in the airplane industry.

Four Rio Tinto Group employees will stand trial in Shanghai on March 22, about nine months after being arrested on suspicion of bribery and stealing state secrets. The detention of the four strained relations between China and Australia and came a month after Rio Tinto rejected a $19.5 billion investment from state-owned Aluminum Corporation of China. The company, also known as CHINALCO, is Rio’s biggest shareholder.
Porsche forecast a second, consecutive-year loss because of the costs of its purchase of a majority stake in Volkswagen last year. The company reported that net income for the six months through January 31 fell 83%.

Global economic news

Greece pushes European Union for aid
Greek Prime Minster George Papandreou warned this week that Greece cannot hold out much longer if it has to keep paying current market interest rates. He set a one-week deadline for the European Union to craft a financial aid mechanism. If the E.U. cannot come up with such a solution, he said, he would have to seek aid from the International Monetary Fund. E.U. leaders have dismissed an IMF option, which they said would make it appear that the E.U. cannot resolve its own crisis. Greece needs to raise about $14 billion to refinance bonds that come due April 20 and May 19. Investors this week were demanding that Greece pay three percentage points more than Germany on its three-year debt.


India unexpectedly raises rates
The Reserve Bank of India unexpectedly raised interest rates on Friday after inflation accelerated to a 16-month high. It was the first time since July 2008 that the bank has raised rates. In a surprise decision coming a month before the scheduled monetary policy meeting, the bank raised its benchmark reverse repurchase rate to 3.5%, from a record low of 3.25%, and the repurchase rate to 5% from 4.75%.


BOJ doubles lending program
In response to government calls to curb a deflationary trend that is thwarting economic recovery, the Bank of Japan doubled a lending program that is aimed at encouraging credit growth. The BOJ’s move comes as other central banks around the world are withdrawing stimulus measures.


Signs of economic strengthening in United Kingdom
U.K. jobless claims unexpectedly fell in February at the fastest pace since 1987. The news, suggesting recovery is strengthening, provides a boost for Prime Minister Gordon Brown, who is seeking to convince voters that his Labour Party has the best plan for economic recovery.

Iceland’s central bank, the Sedlabank, cut its benchmark interest rate, the seven-day collateral lending rate a half a point to 9% and its deposit rate to 7.5% from 8%.

Latvia’s ruling coalition collapsed this week amid difficulties in carrying out the aggressive fiscal cuts that are needed to keep the country’s program with the International Monetary Fund on track. The People’s Party quit the ruling coalition after Latvian Prime Minister Valdis Dombrovskis refused to sign its proposal to shelve planned tax hikes.

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: March 15, 2010

The Markets

Inching onward and upward: Most of the major domestic indexes managed (barely) to reach new highs for the year, the Dow being the lone exception. What investors were out there (trading volume continued to be light) seemed buoyed by relatively promising economic data.

Market/Index	2009 Close	Prior Week	As of 3/12	Week Change	YTD Change
DJIA	10428.05	10566.20	10624.69	.55%	1.89%
NASDAQ	2269.15	2326.35	2367.66	1.78%	4.34%
S&P 500	1115.10	1138.70	1149.99	.99%	3.13%
Russell 2000	625.39	666.02	676.59	1.59%	8.19%
Global Dow	1984.48	1960.23	1989.34	1.49%	.24%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.69%	3.71%	2 bps	-14 bps

Last Week's Headlines

• Concerns that February blizzards in the Northeast might have hit retail sales hard were unfounded. February sales rose 0.3% compared to January and were up 3.9% from last February. Excluding a 2% drop in auto sales, the February number was even stronger (up 0.8%).
• A drop in both exports and imports in January left January's U.S. trade deficit down. Imports were down 1.7% thanks to lower oil demand; exports fell only 0.3%.
• Foreclosures were down 2% from January. Though they were up 6% from the previous February, that's the lowest year-over-year increase in four years, according to RealtyTrac. Nevada, Arizona, and Florida continued to have the highest foreclosure rates.
• Overall household net worth increased by 1.3% during the fourth quarter of 2009, and by 5.4% for all of last year, according to the Federal Reserve Board. A 1.7% annual drop in total consumer debt--the biggest decline on record--was part of the reason. The bad news? The debt reduction was partly the result of record defaults on mortgages, credit cards, and other debt. Also, a 22.7% increase in government debt helped push total public/private debt up 3.4% in 2009.

Eye on the Week Ahead

The Federal Reserve Open Market Committee's statement Tuesday will be parsed for any changes in the Fed's perception of the state of the economy. Friday's quarterly options expiration could bring volatility. Any new proposed regulations from Senate Banking Committee Chairman Chris Dodd will be scrutinized for their potential impact on financial institutions.

Key data releases: Industrial production (3/15); housing starts, Fed announcement (3/16); wholesale inflation (3/17); consumer inflation, leading economic indicators (3/18); quadruple witching options expiration (3/19).

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: Stocks gain amid Greek bailout hopes and strong economic news

U.S. economic news

Strong sales boost growth expectations
In a sign that consumers are spending more, U.S. retail sales unexpectedly rose in February; purchases increased 0.3%, the fourth gain in the past five months. That rise along with news that fewer Americans filed first-time claims for jobless benefits last week, helped power a rise in U.S. stocks.
U.S. household total net worth increased 1.3% in the fourth quarter. For 2009 as a whole, it rose 5.4%. It was the third quarter in a row that net worth climbed; a large amount of that increase came from a drop in household debt, which fell by 1.7% in 2009, the first annual drop since the record-keeping began in 1945.
The U.S. trade deficit unexpectedly narrowed 6.6% in January as imports and exports both declined. Americans imported the fewest barrels of crude oil in a decade and demand for automobiles dropped.

U.S. and global corporate news

BP buys Devon Assets
BP announced on Thursday that it would pay Devon $7 billion in cash for its assets in Brazil, Azerbaijan, and the deep-water part of the Gulf of Mexico. It also will sell Devon a 50% stake in its Kirby oil-sands interests in Alberta, Canada, for $500 million. The two companies will form a joint venture to develop the property.


BMW profits up 36%
BMW reported a 36% increase in 2009 net profit but said it is cautiously optimistic for 2010. That increase came in a year when luxury carmakers experienced a steep downturn.

Global economic news

Global confidence drops
Confidence in the world economy declined in March for the second month amid concern that the fallout from the Greek business crisis would undermine the global recovery. The Bloomberg Professional Global Confidence Index dropped to 53.8 from 54.9 in February. While this is the eighth month that this reading has been above 50, an indication that there are more optimists than pessimists, sentiment still fell in Europe.


Greeks strike
Greece's pledges of budget cuts sparked nationwide strikes this week. Greek hospitals, airports, and schools were shut and police sparred with protesters as unions staged the second general strike this year protesting the budget cuts.


European production increases more than expected
Despite the drop in confidence, signs of stronger growth emerged in Europe. In January European industrial output rose 1.7%, the most in two decades, as economic growth prompted companies to boost the production of goods.


China's inflation soars
China's inflation reached a 16-month high, rising 2.7% in February from a year earlier. Production rose 20.7% in the first two months of 2010. The rapid growth in China's bank lending and investment spending slowed in February. That slowing is seen as a sign that the government's gradual withdrawal of stimulus policies in recent months is starting to have an effect on the real economy.


Japan shows weaker-than-expected growth
Revised data show that Japan's fourth-quarter growth was weaker than previously thought and that the economy actually contracted in the third quarter. The Japanese cabinet office cut the October-to-December gross domestic product growth rate to 3.8% from the 4.6% announced last month. The government attributed the decline to a drop in private-sector inventory and weaker-than-expected business and government spending.


Brazil's expansion sparks rate-increase speculation
Brazil's economy expanded 2% in the last quarter of 2009 from the previous three months. That increase has upped speculation that the central bank will increase the benchmark interest rate at its next meeting.

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: March 8, 2010

The Markets

Back to black: Domestic equities clawed their way back into positive territory for the year, with small caps continuing to lead the way. A lackluster week with continued light volume finished strong with a 122-point jump in the Dow and the sixth straight up day for the S&P 500. Bond investors took heart from strong demand for an auction of Greek bonds.

Market/Index	2009 Close	Prior Week	As of 3/5	Week Change	YTD Change
DJIA	10428.05	10325.26	10566.20	2.33%	1.32%
NASDAQ	2269.15	2238.26	2326.35	3.94	2.52%
S&P 500	1115.10	1104.49	1138.70	3.10%	2.12%
Russell 2000	625.39	628.56	666.02	5.96%	6.5%
Global Dow	1984.48	1891.56	1960.23	3.63%	-1.22%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.61%	3.69%	8 bps	-16 bps

Last Week's Headlines

• Despite expectations that February's dismal weather might also mean dismal unemployment figures, unemployment remained at 9.7% in February. The 36,000 jobs cut from nonfarm payrolls was a far cry from last year's triple-digit job losses, and hiring of temporary workers continued to increase. However, about 4 in 10 unemployed workers have been out of work for at least 27 weeks.
• Consumers opened their wallets a bit more in January. Personal spending was up 0.5%, though incomes rose only 0.1% during the month. At least some of that increased spending was the result of higher prices; personal consumption expenditures, including food and energy costs, were up 0.2% in January.
• Manufacturers remained in growth mode in February. Though the Institute for Supply Management's index of manufacturing activity fell slightly, it remained above 50 for the seventh straight month--a level that indicates expansion. Meanwhile, services sectors grew at the fastest pace in more than two years.
• Construction spending fell 0.6% in January. A 1.1% increase in residential construction project spending was offset by a 1.4% drop in commercial projects.
• U.S. business productivity in the second half of 2009 was even higher than previously estimated. Nonfarm businesses increased their output by 2.5%, in part because the total number of hours worked by the labor force fell. Labor costs dropped 1.7% in 2009, the biggest annual decline since the Bureau of Labor Statistics began keeping records in 1948.

Eye on the Week Ahead

With little economic data to digest, investors will be trying to sort out whether last week represented a pause in the pain or a renewal of the rally that began a year ago Tuesday.

Key data releases: International trade (3/11); retail sales (3/12).

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.

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Week in Review: Stocks rally as reports indicate muted economic improvement

U.S. economic news

Job losses ease, according to several reportsU.S. nonfarm payrolls fell by a better-than-expected 36,000 in February, as noted in a report from the U.S. Department of Labor. The unemployment rate remained steady at 9.7%. A series of winter storms on the East Coast last month are expected to have lowered payrolls temporarily because they caused some businesses to close for a few days. Economists polled by Dow Jones Newswires had expected a loss of 75,000 jobs, primarily because of the weather.

A private report issued earlier in the week by ADP Employer Services indicated that U.S. companies cut just 20,000 jobs in February, the smallest decline in two years. Although the Labor Department’s payroll figures were affected by the severe snowstorms, as some hourly workers would have earned less because of days missed due to storms, ADP’s report is based on a computerized log that is not affected in this way.

Weekly jobless claims declined to 469,000, from 498,000, for the week ended February 26, less than the forecasted 475,000. The four-week moving average of claims fell to 470,750 from 474,250. Consumer confidence rose in January for the third consecutive month, according to the Conference Board.

Signs of economic recovery: Fed Beige Book, ISM, retail salesThe U.S. Federal Reserve Board’s Beige Book, a survey of the nation’s 12 economic regions, gave further support to those who believe that the U.S. economy is moving forward, albeit slowly and deliberately. The economy improved in nine of the Fed’s 12 regions in February. And while improvements are being described as modest, that gradual growth has not led to any signs of inflation or is it expected to for some time. That should be positive for the stock and bond markets, which generally do not respond well to inflationary signs because they lead to higher interest rates and may squeeze profit margins.

U.S. service industries are recovering from the recession, according to the Institute for Supply Management’s index of nonmanufacturing businesses, which rose to 53 in February from 50.5 in January. The February figure was the highest since October 2007, two months before the recession began. The ISM’s manufacturing gauge hit 56.5 in February, its seventh consecutive monthly increase.

Retail sales picked up in February. Same-store sales rose by 4% overall from a year earlier at 28 retailers that report through Thomson Reuters. More than 80% of retailers surveyed beat expectations as they cleared items from Christmas inventories without much markdown.

U.S. and global corporate news

Adidas profit tumblesGerman sportswear maker Adidas reported a 65% drop in quarterly net profit, and it lowered its forecast for 2010. The company, second only to Nike in its industry, earned 19 million euros in the fourth quarter of 2009, down from 54 million euros a year earlier. Sales fell 4.5%, and earnings were squeezed by rising input costs and the decline in the Russian ruble against the euro.

AB InBev net earnings lag expectationsAnheuser-Bush InBev reported 2009 fourth-quarter results that fell short of expectations. The world’s largest brewer earned $1.28 billion for the period, up sharply from a $29 million profit a year earlier, a figure that was skewed by one-time charges related to the merger of InBev and Anheuser-Busch and only partial results a year ago. The firm’s core earnings of $3.12 billion rose from $2.81 billion a year earlier but failed to meet expectations of $3.29 billion in profit.

Bayer’s earnings riseGerman pharmaceutical firm Bayer saw its net profit rise to 153 million euros for the final quarter of 2009, up from 106 million euros a year earlier. However, earnings were lowered by 80 million euros because of unfavorable currency exchange rates.

Adecco witnesses U.S., French job reboundAdecco SA, the world’s largest employment firm in sales, recorded a fourth-quarter net profit of 42 million euros following a 22 million euro year-earlier net loss as job markets in the United States and France began to recover.

Nissan recalls 500,000 vehiclesJapanese car manufacturer Nissan Motor is recalling more than 500,000 trucks, sport-utility vehicles, and minivans in North America, Asia, and Europe because of problems with brake pedal pins and fuel gauges.

Global economic news

Greek government takes new steps to stave off crisisThe Greek government announced a new set of tax increases and payouts for public employers as it continued its efforts to reduce its country’s large budget deficit and allay fears that Greece might default on its debts. European Union officials had demanded deeper cuts before extending any financial bailout for the country. Included were increases in Greece’s sales tax as well as taxes on alcohol, cigarettes, and luxury goods.

Markets responded well to the moves, as the cost of insuring Greek sovereign debt against default in the credit-default-swap market fell. A Greek government bond sale raised 5 billion euros ($6.85 billion) by Thursday morning. The offer to pay 6.3% on 10-year notes attracted 14.5 billion euros in bids, a strong sign of confidence.

Eurozone inflation eases; retail sales fallThe annual inflation rate for 16 countries within the eurozone fell to 0.9% in February, down slightly from 1.0%. The European Central Bank held its key interest rate at 1% at its policy meeting Thursday as inflationary pressures remain contained. The ECB has held rates steady since May 2009.

Meanwhile, sales volume in the eurozone fell by 0.3% from December 2009 to January 2010. Sales declined 1.3% year over year from January 2009.
Eurozone growth slowed from 0.4% in the third quarter, when it emerged from recession, to 0.1% in the fourth quarter, the Eurostat statistics agency reported. Compared with figures from a year earlier, the Eurozone GDP fell 2.1% in the fourth quarter after a 4.1% year-to-year decline in the third quarter of 2009.

India’s exports and imports riseIndia’s exports and imports both had robust growth in January, reflecting a recovery in global economic activity. While exports rose 11.5% in January from a year earlier, imports soared 35.5%. Oil imports rose 56% and non-oil imports grew 28.8% reflecting strong growth in economic activity in India.

Australia’s economy reboundsAustralia’s economy picked up pace in the fourth quarter as GDP rose 0.9% from the third quarter and 2.7% from the year-earlier period, according to a report from the Australia Bureau of Statistics. Australia’s economy was boosted by business investment, a surge of new construction, growth in corporate profits, and government spending.

Mixed reports on Russian economyRussia’s economy stalled in February, with a quarter-to-quarter decline in GDP of 0.1%, according to VTB Capital, the investment banking unit of a Russian bank. The Russian economy grew just 0.5% from February 2009 to February 2010. Unemployment reached 9.2% in January, its highest level since March 2009. However, a report on the global economy issued on Friday by the Organization for Economic Cooperation and Development (OECD) said that the leading economic indicators for Russia rose, along with those of China and all members of the Group of Seven large developed economies. The report said the leading indicators for Brazil and India fell.

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; CNNMoney.com; Forbes Online; msnbc.com.

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