• For the week ending Feb. 13, 2009
  
  
• U.S. government aid plans get tepid reception
• Companies forecast future slowdown, announce job cuts
• Consumer confidence falls as job losses mount
• Cisco sells bonds as credit markets begin thaw
• Eurozone economy contracts

Stocks lost ground this week as investors reacted with skepticism to the U.S. government’s $789.5 billion stimulus package and the U.S. Treasury’s bank rescue plan. Markets seemed to conclude that the stimulus plan would be insufficient to turn the U.S. economy around and the bank rescue plan lacked details. Reports that the U.S. government may subsidize mortgage payments helped stocks recover some lost ground late in the week.

U.S. economic news

Government relief efforts get mixed reaction
Congress and the White House reached a deal late Wednesday, Feb. 11, on the stimulus package. More than a third of the overall package is devoted to tax cuts for businesses and individuals. Government spending accounts for the balance, with tens of billions of dollars allocated over the next two years for the expansion of jobless benefits, aid to help states avoid cuts in education and health care for the poor, and job-creating investment in science research, green technologies, and road and bridge construction.

U.S. Treasury Secretary Timothy Geithner pledged up to $2 trillion in government financing aimed at spurring new lending and addressing banks’ toxic assets.

Details of a government plan of relief for homeowners leaked out Thursday. According to reports, the plan would seek to modify mortgages in danger of foreclosure for homeowners who pass a test to determine if they can afford their home.

Consumer confidence falls
Consumer confidence fell in February as job losses mounted and stocks and home prices continued to fall, according to the Reuters/University of Michigan preliminary index of consumer sentiment. The drop is the first in three months and puts the index near a 28-year low reached in November. The index attempts to gauge consumer expectations six months into the future, allowing a more accurate prediction of the trend in consumer spending.

Signs arise that the slowing may be reaching a bottom 
Home foreclosures slowed as lenders awaited a U.S. plan aimed at keeping troubled borrowers in their homes, and retail sales unexpectedly ended a six-month slide in January. However, analysts are questioning the sustainability of the retail trend, noting that a collapse of the job market will damp consumer spending. Last week the number of Americans collecting unemployment benefits remained near its 26-year high.

U.S. and global corporate news

Cisco Systems sold $4 billion in bonds to raise capital for acquisitions. The bond sale is a sign companies have begun to take advantage of improving credit market conditions to raise money at low rates. Credit markets have improved significantly since last fall when the global financial crisis made it nearly impossible to borrow. Sales of investment grade bonds have picked up so far in 2009. The so-called thawing comes after governments and central banks aggressively lowered interest rates and guaranteed billions of dollars in debt in an effort to restore confidence in the market.

Earnings fell 35% on average at the 359 companies in the Standard & Poor’s 500 Stock Index that have reported fourth-quarter results since Jan. 12, according to data compiled by Bloomberg. The final quarter of 2008 is poised to be the sixth straight quarter of decreasing profits, the longest streak on record.

Job losses continue to mount 
General Motors, the largest U.S. automaker, will cut 10,000 salaried jobs globally and reduce pay by as much as 10% to cut costs.

The Royal Bank of Scotland, which is the largest U.K. government-controlled bank, said it plans to cut as many as 2,300 British jobs, 2% of its U.K. workforce.

UBS announced that it would cut more than 2,000 jobs at its investment banking operation after it reported the largest annual loss ever by a Swiss company. On Tuesday UBS reported a larger-than-expected net loss of $6.96 billion in the fourth quarter of 2008.

Global economic news

The Group of Seven finance ministers and central bankers will convene this weekend in Rome. They will seek to come up with plans to thwart protectionism, overhaul financial oversight, and end a depression in advanced economies.

The eurozone economy contracted the most in at least 13 years in the fourth quarter, with gross domestic product declining 1.5%. The slowing growth has put pressure on the European Central Bank to cut rates further. Six ECB policymakers have said the bank may have to cut rates to a record low from the current 2% and consider other measures to stimulate growth.

China’s economy is showing signs that the government’s $585 billion stimulus package is having a positive effect. Economists now expect that the world’s third-largest economy may grow 6.6% in the second quarter after slowing to 6.3% in the three months to March 31.

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.