• Global stocks rally as banks announce profits
• World finance ministers gather to find ways to battle recession
• U.S. retail sales show stabilization
• Madoff jailed
• GE, Berkshire Hathaway downgraded
• Brazil and Switzerland cut rates

Market optimism returned in full force this week after Citibank, Bank of America, and JPMorgan Chase said they made money during the first two months of the year. Around the world, stock markets rallied on hopes that stability was returning to the financial sector. Citibank kicked off the markets’ rise when it said it was having its best quarter since 2007. The news sent the Dow Jones Industrial Average up 379 points Tuesday, thereby kicking off a week of gains.

Meanwhile, governments have stepped up efforts to avoid the first global economic contraction since World War II. Finance ministers from around the world are meeting near London on Friday and Saturday to discuss ways to battle recession. Before the meeting began, Japan pledged more aid for its economy, ordering a third stimulus package and announcing that it would sink more money into Japanese banks.

U.S. economic news

Retail sales may be stabilizing; deficit narrows; household wealth plunges
Sales at U.S. retailers in February fell less than forecast, and a gain in January exceeded previous estimates, indicating the largest part of the economy may be starting to stabilize. The figures have boosted expectations that the decline in gross domestic product this quarter will be less than anticipated.The U.S. trade deficit narrowed in January to the lowest level in six years as Americans cut purchases. Imports fell faster than exports, and that helped the trade gap shrink by 9.7% to $36 billion. The deficit has not been that small since October 2002.

U.S. household net worth dropped nearly 18% in 2008. This was the biggest loss since the U.S. Federal Reserve Board began tracking the statistic after World War II.

U.S. and global corporate news

Madoff jailed
Bernard Madoff was jailed after admitting he masterminded the largest Ponzi scheme in history, which may have reached $65 billion.

Roche seals Genentech deal
Swiss drugmaker Roche Holding said it sealed a deal with Genentech to buy the 44% of the U.S. biotech company that it does not already own for about $46.8 billion. That agreement ends a nearly eight-month battle in which Genentech repeatedly rejected Roche’s offer.

GE’s and Berkshire Hathaway’s ratings are cut
Standard & Poor’s Ratings Service cut the long-term credit rating of General Electric and its finance arm, GE Capital, to AA+ from AAA. S&P said it believed GE Capital was under increased earnings pressure because of the sharp economic deterioration. Fitch Ratings cut its credit ratings on Berkshire Hathaway, stating that no finance-oriented company should be rated AAA because of significant market volatility. Fitch downgraded Berkshire’s issuer default rating one notch to AA+ and its senior unsecured debt rating two notches to AA.

Canon said it expects net income will increase to 150 billion yen in 2010, up from this year’s forecast of 98 billion yen. The increase reflects the company’s expectation that the global economy will recover next year.

Global economic news

Japan’s economy contracts; China’s trade surplus falls
Japan’s economy contracted at the fastest pace since 1974 last quarter as exports, output, and business spending collapsed. Gross domestic product shrank an annualized 12.1% in the three months ended December 31.

China’s trade surplus shrank in February as exports fell by a record 25.7% from a year earlier and imports dropped 24.1%. The gap narrowed to $4.8 billion.

Central banks cut rates
Brazil’s central bank cut its benchmark interest rate and signaled that more cuts are on the way. The bank lowered the so-called Selic rate by 1.5 percentage points, the steepest cut in five years, to 11.25%. The Swiss National Bank cut its interest rate close to zero and began buying currencies to slow the franc’s appreciation. The SNB also said it would buy corporate bonds as well as currencies in its first solo intervention in foreign exchange markets since 1992.

European retail sales, industrial production drop
European retail sales fell for the eighth month in January. Industrial production in Germany, the region’s largest economy, dropped 7.5% from December, and factory orders plunged 38% from a year earlier.

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.