Stocks hit by news of mounting economic woes

For the week ended January 16, 2009

• Bank of America gets $138B bailout
• Data suggest worsening recession
• U.S. cost of living falls
• Citigroup will split its operations
• JPMorgan’s profits fall 76%
• Central banks in eurozone, Mexico, and Turkey cut rates

Stocks staged a bounce Friday morning after the U.S. government agreed to a $138 billion bailout of Bank of America. However that upbeat news was not enough to reverse the week’s selloff, which was sparked by a steady stream of data signaling and even deeper recession.

U.S. economic newsWeak economic news pressures stocks
More dire data contributed to a selloff in stocks that sent the benchmark Standard & Poor’s 500 Stock Index to its lowest level in about 6 weeks on Thursday. First-time claims for unemployment insurance climbed by 524,000 in the week ended January 10. In December, retail sales fell for the sixth straight month and industrial production dropped twice as much as forecast. The U.S. Federal Reserve Board said manufacturing in the Philadelphia and New York regions shrank further in January.

Prices fall as recession deepens
The cost of living in the United States fell in December as the recession deepened. Consumer prices rose 0.1% in 2008, the smallest annual gain in half a century. In December prices fell 0.7% after dropping 1. 7% in November. Prices paid to U.S. producers fell 1.9%, which marks the first annual decline since 2001.

More aid for economy and financial sector
Democrats In the U.S. House of Representatives unveiled an $825 billion economic plan and the U.S. Senate voted to release $350 billion in financial rescue funds, which represents the second half of the $700 billion Troubled Asset Relief Program.

U.S. and global corporate news

The first weeks of 2009 bring fresh shakeups to global financial companies
The U.S. government agreed to invest $20 billion more in Bank of America and to guarantee $118 billion of its assets. BOA, the largest U.S. bank by assets, posted its first loss since 1991 and cut its dividend to a penny.

Citigroup posted an $8.29 billion loss, twice as much as expected. The company said it will split into two.

JPMorgan Chase & Co., the second largest U.S. bank by assets, said profits fell 76% as rising defaults and the U.S. recession forced the bank to write down $2.9 billion of assets and boost reserves for bad loans. The company said it almost tripled its provisions for bad debt in the past year.

Deutsche Bank, Germany’s largest bank, this week reported a record $6.3 billion loss in the fourth quarter.

Japan’s biggest bank, Mitsubishi UFJ Financial Group, said it will book $3.2 billion in charges on stock market investments. The write-down threatens to cause the lender its first loss; the charge will be for its third fiscal quarter ended December 31, 2008. Mitsubishi UFJ has announced plans to raise 790 billion yen to shore up its balance sheet, as the number of bad loans rise and the drop in the stock market erodes the value of its investments.

Global economic newsCentral banks cut rates
The European Central Bank cut its key interest rate by 50 basis points, to 2%, on Thursday. This was the fourth time in as many months that ECB policymakers cut rates to fend off a worsening recession in the region. Rates in the 16-country eurozone are now at their lowest level ever.

Mexico’s central bank cut its benchmark interest rate for the first time in almost three years in an effort to boost the country’s slumping economy.

Turkey’s central bank cut rates a more-than-expected 200 basis points, to 13%, as the economy slipped into recession and inflation eased.

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.

Past performance is no guarantee of future results.

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