• Toxic-asset plan well received
• Economic data show some improvement
• Corporate profits slump in fourth quarter
• Japanese exports plunge 49%

Stocks ended the week higher as several reports raised hopes that the economy may be turning a corner, and investors responded enthusiastically to the White House’s plan to clean banks’ balance sheets. The success of the U.S. Department of the Treasury’s seven-year note auction also buoyed sentiment, convincing investors that the Treasury could still raise money at reasonable rates. During the week, the Dow Jones Industrial Average firmly entered so-called bull market territory, gaining more than 20% since its March 9 low.

U.S. economic news

Toxic-asset plan buoys markets
U.S. Treasury Secretary Timothy Geithner detailed the Obama administration’s Public-Private Investment Program, a plan intended to clean toxic assets from banks’ balance sheets. The two-part program aims to boost purchases of bad loans and real-estate related securities and will use up to $100 billion of bank rescue funds from the Treasury as well as financial guarantees from the U.S. Federal Reserve Board and Federal Deposit Insurance Corporation (FDIC).

Data show some improvement
In February, orders of durable goods, products meant to last several years, increased 3.4%, the fastest pace in more than a year. That rise prompted speculation that the worst of the recession is over. The gains of durable goods orders followed a 7.3% decrease in January. Combined with reports showing improvement in retail sales, residential construction, and home resales, the figures indicate the economy may be stabilizing after shrinking last quarter at the fastest pace in 25 years.

New homes sales rose in February 4.7%. It was the first time in seven months that sales increased.

Despite the positive signs, the deteriorating job market continued to take a toll on the consumer. Americans slowed spending in February, and incomes fell more than forecast. Purchases grew 0.2% after a 1% increase in January. However, much of the gain was the result of an increase in prices, meaning that real spending declined for the month.

U.S. and global corporate news

Companies hard hit by downturn
Corporate profits fell by $250 billion, or 16.5%, in the fourth quarter from the third, the steepest drop in 55 years. Compared with the fourth quarter of last year, profits were down more than 20%.

The Wall Street Journal reported that International Business Machines (IBM) plans to lay off about 5,000 U.S. business services employees and transfer many of the jobs to India.

Moody’s Investors Service downgraded Bank of America debt and preferred stock on concern that the company may need a third round of financial aid from the government.

Global economic news

Global downturn hits exports, confidence
Japan’s exports plunged a record 49.4% as deepening recessions in the United States and Europe sapped demand for the country’s cars and electronics. Shipments to the United States, which is Japan’s largest market, dropped 58.4% from a year earlier, and automobile exports slipped 70.9%.

In March, German business confidence fell to the lowest level in more than 26 years. The Ifo Institute said its business climate index dropped to 82.1, the worst reading since November 1982. Confidence has fallen in Europe’s largest economy as a global slump in demand has forced German companies to scale back production and cut jobs and has pushed he economy into the worst recession since World War II.

Poland’s central bank cut its benchmark interest rate to a record low of 3.75% in an effort to stimulate the country’s slowing economy.

In the fourth quarter, the U.K. economy contracted at the sharpest rate since 1980. On a quarter-to-quarter basis, gross domestic product fell 1.6%, while it was 2% lower on the year.

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.

MFS Investment Management was named among the Top Fund Families by BARRON’S.

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.