This is a weekly review of financial markets from MFS.

For the week ended January 9, 2009

• 524,000 jobs lost in December; 2.6 million for the year
• Unemployment hits 7.2%
• Christmas retail sales suffer
• More layoffs announced

More bad economic news piled up this week as the U.S. Department of Labor announced greater-than-expected job losses for December and final reports showed retailers had one of the weakest holiday seasons on record. The news pressured stocks around the world. By mid-day Friday, the Dow Jones Industrial Average and the Standard & Poor’s 500 Index had both lost more than 4% for the week, and the NASDAQ Composite Index was off by more than 3%. Major global indices were down 2% to 4% for the week, as investors acknowledged the negative impact of ongoing U.S. economic weakness on exporters.

U.S. economic news

The U.S. unemployment rate jumped to 7.2%, its highest since January 1993, as employers cut another 524,000 U.S. jobs. On the basis of the latest jobs data and weak auto and retail sales reports, an article in The Wall Street Journal on Friday speculated that U.S. gross domestic product probably fell 5% or more in the fourth quarter of 2008, after slipping just 0.5% at an annual rate in the third quarter.

The Congressional Budget Office forecast a $1.2 trillion budget deficit for the fiscal year. This projected record-high deficit does not include the massive economic stimulus package, pegged at roughly $800 billion over the next two years, that president-elect Barak Obama is urging Congress to pass to prevent the economic crisis from worsening. That stimulus package would bring the 2009 budget shortfall to $1.6 trillion. The CBO also predicted that the unemployment rate would climb above 9% by the end of 2009.

Retailers confirmed what many had feared: Sales were down in December in one of the weakest holiday shopping seasons in decades. According to research firm Retail Metrics, same-store sales are projected to decline 1.2%. Sales at mall retailers — including Abercrombie & Fitch, American Eagle Outfitters, Gap, Limited Brands, andPacific Sunwear — were all off by double-digits. Sales were down by less than 10% at J.C. Penney, Sears, Bon-Ton, Dillard’s, and Kohl’s.

However, sales were up slightly at discount retailer Wal-Mart, low-priced apparel store Aeropostale, and teenage retailer Hot Topic. Wal-Mart fell short of the 2.8% growth in sales that analysts had expected but did manage a 1.7% increase in same-store sales in December. Discount retailer Family Dollar Stores also performed well, with same-store sales up 6% in December and overall sales 8% higher.

The slower December sales from a year earlier came on top of weak November sales, as retail chains reported a 2.7% drop in sales, according to the International Council of Shopping Centers. Retailers could face more challenges going forward: It is likely that profit margins will be squeezed as a result of a reported trend that nervous retailers are discounting prices on spring merchandise as soon as it hits stores.

As a result of the weak employment numbers, the U.S. dollar fell versus other major currencies and the price of crude oil futures slipped below $41 per barrel Friday morning.

U.S. and global corporate news

Satyam Computer Services, a leading Indian outsourcing firm, saw its stock go into a tailspin on the revelation on Wednesday that its chairman, Ramalinga Raju, had falsified the company’s financial accounts for years. Matters were complicated further on Thursday, when it was revealed that Satyam’s financial books were in the possession of its recently resigned chief financial officer. The Securities and Exchange Board of India has begun an investigation of the company. Satyam also faces two lawsuits for violating U.S. securities law by issuing false and misleading statements in its American depositary receipts. Sales of the company’s U.S.-listed shares have been halted since Wednesday.

Toyota Motor is forecasting its first annual operating loss in 70 years, a further indication of the extent of the auto industry’s global troubles. Falling demand in the United States, Europe, and Japan, along with other markets, and a strengthening of the yen, which translates into less favorable currency exchange rates on Japanese exports, contributed to the automaker’s profit squeeze.

Alcoa, the world’s largest aluminum producer, announced plans to eliminate 15,000 jobs, close plants, sell assets, and cut capital expenditures in half as a result of the global recession.

Intel, the leading semiconductor chip maker, said it expects revenue to fall 20% in its fourth quarter, which is traditionally the strongest for the semiconductor industry.

Time Warner will record roughly $25 billion in write-downs for the fourth quarter. The media company said its 2008 annual operating results will fall short of expectations because of deteriorating advertising demand.

U.K. retailer Marks & Spencer said it would close 27 stores and cut about 1,200 jobs as a result of slower sales over the holidays and slimmer profit margins caused by discounting.

Global economic news

The dispute between Russia and Ukraine, which has led to gas shortages that have had a negative impact throughout Europe, showed signs of possible resolution. Ukraine said it would allow Russian experts to join a European Union mission monitoring gas flow through Ukrainian pipelines. In a dispute over prices, Russia had turned off gas supplies to Ukraine on January 1. Some 80% of Russia’s gas exports to the EU flow through Ukraine.

The Bank of England lowered its key interest rate by a half percentage-point on Thursday, to 1.5%, the lowest since the central bank was founded in 1694. Meanwhile, dismal European economic indicators, including rising unemployment and dwindling consumer and business confidence, are putting increased pressure on the European Central Bank, which meets next week, to cut its key rate for the 16-nation eurozone.

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.

The Dow Jones Industrial Average (DJIA) measures the U.S. stock market; the Standard & Poor’s 500 Stock Index (S&P 500) measures the broad U.S. stock market; the Institute for Supply Management’s factory index is part of the ISM’s overall Manufacturing ISM Report On Business^® and is based on data compiled from purchasing and supply executives nationwide; the NASDAQ Composite Index measures domestic and foreign-based stocks traded on the National Association of Securities Dealers Automated Quotation system.

Past performance is no guarantee of future results.

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times.