Financial Advisor / United States Investor / United States Other MFS Sites
home login Sign up proxy voting careers contact us help

Week in Review: Quarterly earnings drive stocks downward

For the week ended 24 July 2015

  • Greece passes austerity, ready for bailout
  • China’s manufacturing PMI falls
  • Japan’s export volume flat
  • US home sales, prices climb
  • Apple, Microsoft earnings disappoint

Stocks retreated globally, largely driven by weak corporate earnings, as US companies posted their second-quarter results. Apple, IBM, Caterpillar and Microsoft were among big names to miss earnings estimates or cut full-year forecasts. However, Morgan Stanley and Amazon beat expectations. So far, more than 75% of companies have exceeded earnings forecasts, while only 52% have surpassed revenue expectations.

The yields on the 10-year US Treasury note and 10-year German bund fell to 2.26% and 0.66%, respectively, as investors sought more safety. Gold prices fell to a five-year low, below $1,000 per ounce. The euro rose to near $1.10. Oil prices for US West Texas Intermediate and international Brent crude oil tumbled to about $48 and $54.50 per barrel, respectively.

US and global economic news

Greece passes austerity measures
Greece’s parliament passed new austerity measures Thursday, clearing the way for negotiations with its international creditors over a third bailout package, worth up to €86 billion. Greece hopes to have funding in place by 20 August, when it is due to repay €3.2 billion to the European Central Bank. Greece’s banks reopened Monday after being closed for three weeks, although many capital controls remain in effect.

China’s manufacturing gauge disappoints
The Caixin Media/Markit preliminary manufacturing purchasing managers index fell from 49.4 in June to 48.2 in July, the lowest level in 15 months. The report points to continued slowdown in China’s economy and puts pressure on its government and central bank to introduce additional stimulus measures. In response to this news, Asian stocks fell and the Australian dollar tumbled to a six-year low.

Japan’s export volume flat, value rises 9.5% in June
The value of Japan’s exports rose 9.5% in June from a year earlier, but volumes were unchanged. Foreign demand for Japanese goods remained flat despite the yen’s weakness. Japan’s imports fell 2.9%, creating a ¥69 billion ($556 million) trade deficit. Separately, the International Monetary Fund warned that unless Japan addresses its debt through spending cuts and more realistic budget forecasts, its debt could climb to three times the size of its economy by 2030.

US existing home sales soar, new home sales decline
In June, US home resales hit their highest point since February 2007. Existing home sales rose 3.2% to an annual rate of 5.49 million units. Sales were 9.6% higher than a year earlier. In contrast, new single-family home sales fell 6.8% in June to a seasonally adjusted annual rate of 482,000, a seven-month low. However, sales were 18.1% higher than in June 2014.

US existing home prices reach record high
The median price of US existing homes sold in June reached a record $236,400. The median June sales price was 6.5% higher than a year earlier, according to the National Association of Realtors. But factoring in inflation, prices are 20% below where they were in 2006, when the previous record of $230,400 was set.

Weekly US jobless claims plunge to lowest level since 1973
Initial jobless claims tumbled 26,000 to 255,000 for the week ended 18 July, the lowest level since November 1973. The steep weekly drop may reflect reporting inconsistencies related to summer shutdowns for retooling at auto plants. The four-week moving average fell 4,000 to 278,500. Continuing claims dropped 9,000 to 2.21 million for the week ended 11 July.

US and global corporate news

Apple posts strong gains but disappoints
Technology giant Apple reported strong — but not strong enough — gains in sales and profit for its fiscal third quarter. Though Apple posted a 38% rise in profit, and sales surged 33%, results fell short of analyst estimates. Sales of iPhones jumped 35% to 47.5 million units, shy of the 50 million that analysts had forecast. MacIntosh computer sales rose 9% while global PC shipments fell 9.5%.

Microsoft posts $3.2 billion loss
Microsoft reported a $3.2 billion loss for its fiscal fourth quarter. Weakness in its corporate software division was offset somewhat by strength in consumer technology, including sales of Surface tablets and Xbox game consoles. The large loss resulted from $8.4 billion in charges and layoffs in the firm’s troubled mobile phone operations, acquired from Nokia in 2014. Excluding the Nokia charges, Microsoft’s earnings beat analyst estimates.

Amazon swings to profit on sales surge
Amazon recorded an unexpected profit, driven by a 25.5% rise in North American sales compared with a year ago. Cloud-computing revenue and growth in the company’s Prime subscription service contributed to results. Amazon also forecast higher third-quarter revenue.

Morgan Stanley earnings beat expectations
Morgan Stanley beat earnings expectations on a 32% increase in trading revenue, in contrast with Wall Street rival Goldman Sachs’ trading revenue, which fell 5%. Morgan Stanley’s overall revenue rose 13%.

Anthem to buy Cigna for $48.4 billion
Health insurer Anthem has agreed to buy rival Cigna for $48.4 billion, potentially creating the largest US health insurer. The deal calls for Anthem to pay $188 per share in cash and stock for Cigna, a 22% premium above Cigna’s closing price of $154.36 on Thursday. The price was bumped up from $184 per share offered in late June.

Lockheed Martin to buy Sikorsky Aircraft for $9 billion
Lockheed Martin plans to buy Sikorsky Aircraft, the helicopter unit of United Technologies, for $9 billion. The deal locks in Lockheed, already the Pentagon’s number one supplier, as the dominant company in US weapons making and opens new foreign markets.

The week ahead

  • Germany’s Ifo survey is released on Monday, 27 July.
  • US durable goods orders are reported on Monday, 27 July.
  • The US Federal Reserve holds its policy meeting Tuesday–Wednesday, 28–29 July.
  • European Union economic sentiment is reported Thursday, 30 July.
  • US GDP is reported on Thursday, 30 July.

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 information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or 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. Full holdings are also available on the individual Fund Summary tab in the Products section of

Past performance is no guarantee of future results.

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

Issued in the United States by MFS Institutional Advisors, Inc. ("MFSI") and MFS Investment Management. Issued in Canada by MFS Investment Management Canada Limited. No securities commission or similar regulatory authority in Canada has reviewed this communication. Issued in the United Kingdom by MFS International (U.K.) Limited ("MIL UK"), a private limited company registered in England and Wales with the company number 03062718, and authorised and regulated in the conduct of investment business by the UK Financial Conduct Authority. MIL UK, an indirect subsidiary of MFS, has its registered office at One Carter Lane, London, EC4V 5ER and provides products and investment services to institutional investors globally. This material shall not be circulated or distributed to any person other than to professional investors (as permitted by local regulations) and should not be relied upon or distributed to persons where such reliance or distribution would be contrary to local regulation. Issued in Hong Kong by MFS International (Hong Kong) Limited ("MIL HK"), a private limited company licensed and regulated by the Hong Kong Securities and Futures Commission (the "SFC"). MIL HK is a wholly-owned, indirect subsidiary of Massachusetts Financial Services Company, a US based investment adviser and fund sponsor registered with the US Securities and Exchange Commission. MIL HK is approved to engage in dealing in securities and asset management regulated activities and may provide certain investment services to "professional investors" as defined in the Securities and Futures Ordinance ("SFO"). Issued in Singapore by MFS International Singapore Pte. Ltd., a private limited company registered in Singapore with the company number 201228809M, and further licensed and regulated by the Monetary Authority of Singapore. Issued in Latin America by MFS International Ltd. For investors in Australia: MFSI and MIL UK are exempt from the requirement to hold an Australian financial services license under the Corporations Act 2001 in respect of the financial services they provide. In Australia and New Zealand: MFSI is regulated by the US Securities & Exchange Commission under US laws and MIL UK is regulated by the UK Financial Conduct Authority under UK laws, which differ from Australian and New Zealand laws.