Around the world, stock markets tumbled this week as concern mounted that Europe 's inability to contain its debt crisis would slow the global economic recovery. The rout began on Wednesday after Germany, in a unilateral move, announced a partial ban on naked short selling — the selling of securities that are not owned or borrowed — and gained strength as plans for spending cuts by Europe’s most indebted nations and proposals to tighten U.S. financial industry regulation shook investor confidence.
As risk aversion mounted and investors fled to safer securities, the yield on the 30-year U.S. Treasury bond dropped to its lowest level of the year. The Chicago Board Options SPX Volatility Index, considered Wall Street's fear gauge, rose to a 13-month high. European and Asian stock markets fell to respective eight- and nine-month lows. The euro fell to a four-year low, prompting U.S. and European officials to begin discussions on currency market intervention, and the London interbank offered rate, or LIBOR, rose to the highest level in almost 10 months as the sovereign debt crisis made institutions reluctant to lend.
As of May 19, investors had withdrawn some $12 billion from U.S. and European equity funds, according to research firm EPFR Global, and as of Thursday, the plunge in global equities had wiped out $5.3 trillion of market value.
U.S. economic news
In April, U.S. inflation slid to its lowest level in 44 years. This is the latest sign that high unemployment and excess production capacity are holding down wages and prices.
The U.S. Senate approved a sweeping overhaul of the financial services sector that would restrict the actions of banks and other financial firms. The measure must now be reconciled with the bill passed by the House of Representatives.
Weak data drive stocks lower
On Thursday stocks were dragged lower by news that U.S. jobless claims had unexpectedly increased 25,000 to 471,000 in the week ended May 15, exceeding expectations and the highest level in a month. A drop in the Conference Board's index of leading indicators added to the selloff. That index fell 0.1% after a sharp decline in building permits.
On Thursday stocks were dragged lower by news that U.S. jobless claims had unexpectedly increased 25,000 to 471,000 in the week ended May 15, exceeding expectations and the highest level in a month. A drop in the Conference Board's index of leading indicators added to the selloff. That index fell 0.1% after a sharp decline in building permits.
U.S. and global corporate news
Wal-Mart, Home Depot post results
Wal-Mart reported its fourth consecutive quarter of sluggish U.S. sales but still managed to post a 10% profit increase for the quarter ended April 30 amid tighter expense controls and strong international sales.
Wal-Mart reported its fourth consecutive quarter of sluggish U.S. sales but still managed to post a 10% profit increase for the quarter ended April 30 amid tighter expense controls and strong international sales.
Home Depot's fiscal first-quarter earnings rose a more-than-expected 41% as improved profitability and strength in products tied to simple repairs and the outdoors helped results. The company boosted its current-year sales and earnings forecasts.
Global economic news
Germany approves share of bailout
The German lower house of parliament approved the country’s share of a $1 trillion lending package to ease Europe ’s debt woes.
The German lower house of parliament approved the country’s share of a $1 trillion lending package to ease Europe ’s debt woes.
UK posts largest budget deficit on record
In April, the United Kingdom posted its largest monthly budget deficit since recordkeeping began in 1993. The report opens the way for what economists say will be some of the sharpest cuts in public spending in a generation. The newly appointedChancellor of the Exchequer, George Osborne, has ordered departments to find £6 billion of savings this year.
In April, the United Kingdom posted its largest monthly budget deficit since recordkeeping began in 1993. The report opens the way for what economists say will be some of the sharpest cuts in public spending in a generation. The newly appointedChancellor of the Exchequer, George Osborne, has ordered departments to find £6 billion of savings this year.
France calls for tougher rules on deficits; Japan 's economy grows 1.2%
France joined Germany in calling for tougher rules to prevent large government deficits and said it would work together on measures to stabilize the eurozone.
France joined Germany in calling for tougher rules to prevent large government deficits and said it would work together on measures to stabilize the eurozone.
Japan 's economy grew 1.2% in the first quarter, but a sustained and full recovery still depends on continued demand for the country's exports.
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.
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.
Past performance is no guarantee of future results.
Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times.
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