For the week ended January 23, 2009, compiled by MFS:

• Dow suffers its worst Inauguration Day decline
• State Street losses spark banking rout
• Microsoft stuns with report of loss
• U.K. economy officially in recession
• Slowing China growth hits region’s export markets
• Central banks in Brazil and Canada cut rates

Stocks took a dive this week amid disappointing earnings and economic news. Corporate heavyweights, including Microsoft, General Electric, and Advanced Micro Devices, reported lower earnings, and economic data continued to point to a worsening global recession. As Barack Obama took office as the 44th president of the United States, the Dow Jones Industrial Average posted its worst Inauguration Day performance as worries mounted about the fate of the nation’s financial services sector. The Dow lost 332.13 points, or 4%. The decline was led by a 20% drop in bank shares as concern increased that financial institutions would need to be nationalized.

U.S. economic news

The Senate Finance Committee approved the nomination of Timothy F. Geithner as U.S. Secretary of the Treasury, a step that opened the way for full Senate confirmation. On Thursday, Geithner told members of Congress that he backs the Treasury’s long-standing commitment to a strong dollar, which he said is in the national interest.

New home construction fell sharply in December, and a drop in permits for future construction suggested that declines will continue. At the same time, homebuilder confidence hit a record low, and the government gauge of home prices showed accelerating declines.

U.S. and global corporate news

Banking woes reignite
Financial services sector stocks led the violent market swings this week as investors abandoned shares in even the healthiest of banks. The rout began on Tuesday when State Street reported nearly $9 billion in unrealized losses from declines in its investment portfolio and exposure to investment vehicles that issue asset-backed securities. Friday, shares sank anew after credit card issuer Capital One Financial said it expects losses will worsen this year on the basis of its projections that unemployment will hit 8.75% and home prices will decline another 10%.

GM loses top spot
General Motors reported an 11% drop in 2008 vehicle sales, a decline that means it will give up its spot as the world’s biggest automaker after having been able to make that claim for the past 77 years. Toyota Motor will now take over the lead, as GM struggles to stay afloat with U.S. government loans.

Earnings woes widespread
General Electric’s profit dropped 43% as the global credit crisis eroded income at its finance unit. Technology companies came under pressure as well. Microsoft stunned markets with its report of an 11% decline in profits and its plan to cut 5,000 jobs. AMD announced a $1.42 billion loss, saying it was negatively impacted by the deteriorating environment for computer sales and that it took large write-offs. Google posted a 68% drop in profits on large write-downs. Sony said it planned deeper cost cuts and that it would report its first annual loss in 14 years. Nokia’s profit fell 69%, and Samsung and LG reported losses amid the falling demand for electronics. Apple posted strong sales and profit for the quarter but gave a cautious outlook. IBM alone bucked the trend in the sector, announcing a positive outlook for 2009. It said its profit rose 12% for the fourth quarter. Even earnings stalwart Johnson & Johnson said quarterly profit rose 14% but warned that 2009 could produce the first drop in annual revenue in 79 years.

Global economic news

U.K. economy officially in recession
The United Kingdom officially announced it is in recession, with the economy contracting 1.5% in the fourth quarter after a 0.6% fall in the third. On the year gross domestic product (GDP) shrank 1.8%. It is the first time since 1991 that the economy has contracted for two consecutive quarters, and the fourth-quarter decline was the sharpest since the second quarter of 1980. The country’s banking sector has essentially been crippled by the financial crisis. The announcement of recession came days after the government announced a giant new bailout plan to rescue banks and revive lending, including insurance plans to limit banks’ losses on bad investment and government guarantees on bonds backed by mortgage and other consumer loans. Meanwhile, Royal Bank of Scotland Group warned of massive 2008 losses. The British pound slid to its lowest level against the dollar in 23 years after news of the GDP contraction.

S&P cuts Portugal and Spain credit ratings
Standard & Poor’s cut the credit ratings of Portugal and Spain this week amid concerns of ballooning fiscal burdens and rising speculation that the countries may have difficulties servicing their debt. Earlier in the month, S&P cut Greece’s rating and put Ireland’s on watch.

China’s growth slows sharply; Asia hit by decline in export demand
China said its economy expanded 6.8% for the fourth quarter of 2008, compared with the same quarter a year ago. The report confirmed that the global economic crisis has cut China’s growth rate, which was 13% in 2007, nearly in half. China’s trading partners are being hit as demand from China declines. On Thursday the Bank of Japan held interest rates steady but sharply cut its growth and price projections, a move that triggered concern that the country could be facing deflation. The BOJ said it expects GDP to shrink by 1.8% in the fiscal year ending March 31, 2009, and by 2% in the following fiscal year.

Singapore, which is seen as a bellwether for Asia’s export industry, sharply reduced its economic outlook for the year. The reduction has increased concerns that the region’s slowdown is intensifying. Singapore said it expects its growth to shrink by 2% to 5% this year, blaming worsening signs of weakening global demand for its products. Singapore cut corporate taxes for the second time in three years and said it will use its reserves to fund a record level of spending in an effort to drag the economy out of the deepest recession since its independence.

Brazil and Canada central banks cut rates
This week Brazil’s central bank cut rates the most it has in five years and signaled it is ready to reduce borrowing costs further to prevent recession. Canada’s central bank cut its benchmark interest rate half a percentage point to 1%, the lowest level ever. The bank also signaled it is prepared to cut the rate again to combat a recession.

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; and the NASDAQ Composite Index measures domestic and foreign-based stocks traded on the National Association of Securities Dealers Automated Quotation system.

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