The 10.2% unemployment figure is far worse than what economists had expected, and they don’t see any sign of relief until next year. While the pace of layoffs has slowed, the unemployment rate is continuing to climb, reports Javier C. Hernandez for The New York Times.

Unemployment isn’t just as issue here, either; millions around the world don’t expect to see relief in the form of jobs anytime soon. The European Union forecast unemployment in the eurozone to rise to 10.7% in 2010, up from 9.5% this year. Unemployment ranges from 3.5% in the Netherlands to 18.3% in Spain, reports Greg Keller for the Associated Press. In China, the official urban unemployment rate is 4.3% in the third quarter. Brazil’s unemployment was 8.1% in August, almost unchanged from the previous month.

Gold futures have soared to a record $1,100 an ounce today. While some profit-taking briefly sent gold lower, it resumed its course and analysts expect it to continue to move higher, reports Allen Sykora for The Wall Street Journal. SPDR Gold Shares (NYSEArca: GLD) is up about 0.4% year-to-date. (More on gold can be found here).

Businesses slashed inventories for a record 13th straight month in September, although sales rose for the sixth consecutive time. Many hope that improving sales figures will encourage businesses to start lifting production, although a rising jobless rate heightens fears that consumers won’t start spending anytime soon, reports Martin Crutsinger for the Associated Press. (An ETF to play holiday shopping).

The world’s largest insurer, AIG (NYSE: AIG) reported that it was profitable for the second consecutive quarter. Although things have stabilized, the company’s CEO said that earnings will remain choppy while they restructure.  SPDR KBW Insurance (NYSEArca: KIE) is up about 0.6% this morning.

G20 Finance Ministers are meeting this week to discuss financial reform and economic recovery. While these economies have put in place certain policies in order to push along a recovery, they’re not policies anyone wants to keep in place forever. The general consensus is that it’s too soon to reverse the measures, but it’s not too soon to begin talking about when and how it would happen. Government debt in developed G20 countries is likely to reach 118% of annual national income in 2014, reports Andrew Walker for the BBC.

For more stories on the global economy, visit our global ETF page.

Airline Industry. Total airline traffic is still declining, but at a slower rate than it was. Additionally, the drop in freight traffic is declining at a slower rate. Some analysts expect the industry to start taking off in 2010.

• Claymore/NYSE Arca Airline ETF (NYSE: FAA): up 51% in the third quarter

Brazil. Moody’s Investor Services is eyeing Brazil for a possible upgrade to investment-grade. Moody’s would join both Fitch and Standard & Poor’s in giving Brazil an investment-grade rating. A better rating will improved investor sentiment and a boost in the financial sector.

• Market Vectors Brazil Small-Cap ETF (NYSEArca: BRF): up 44.7% in the third  quarter

Commercial Real Estate. The real estate sector has been thoroughly beaten, but some analysts out there feel that the sector has seen the worst, and 2010 could mark a period of improvement. Some pension funds are also beginning to jump into the sector.

• iShares FTSE NAREIT Industrial/Office Complex (NYSEArca: FIO): up 39.9% in the third quarter

Mid-Caps. Mid-cap stocks and companies have done well as the broader market has recovered: in the last six months, they’re up about 45%. Only small-caps have been performing better – small-caps historically outperform the markets after a recovery.

• Rydex S&P Midcap 400 Pure Value (NYSEArca: RFV): up 39% in the third quarter

Insurance Industry. Fed by optimism about the prospect of improving conditions at the insurer, some insurance companies can bounce back higher from prior-year losses while others may see true growth. Property and causality insurers have been spared by a calm hurricane season so far, and most insurers benefited from a recovering financial market.

• SPDR KBW Insurance (NYSEArca: KIE): up 36.7% in the third quarter

Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.

Max Chen contributed to this article.

American International Group (NYSE: AIG) is back in positive territory that’s being fed by optimism about the prospect of improving conditions at the insurer, reports Michael Baron for TheStreet. A recent Government Accountability Office report showed that while AIG’s  fate is still a question mark, there were signs of stabilization and improvement in its businesses.

Gary Gordon for ETF Expert says that he believes that insurance ETFs are due for a “larger-than-broad-market” sell-off of between 10% and 15% anytime now.

Any sell-off could be due just because the seven-month bullish stampede may have run out of steam. Because of the nature of the insurance industry, while most companies are busy selling less and/or turning smaller losses from one year ago, the insurance industry may turn out to impress you.

Gordon says that at best, if key companies in the S&P 500 Index revise earnings estimates higher for 2010, insurance ETFs could outperform the broader market in a year-end, post-pullback push.

Whether this actually comes to pass remains to be seen, but if the predictions turn out to be correct, have your strategy in place to act on, if necessary.

• SPDR KBW Insurance (NYSEArca: KIE): up 32.8% year-to-date



• iShares Dow Jones US Insurance (NYSEArca: IAK): up 14.9% year-to-date



• PowerShares Dynamic Insurance (NYSEArca: PIC): down 4.4% year-to-date

For more stories about insurance, visit our insurance category.

For a majority of companies, third-quarter results could be below those of 2008, with per-share profits for the S&P 500 at a projected drop of 15.4%. More than 340 businesses could see a year-over-year drop in profits, according to Zacks. Projected revenues show median company sales may drop 7.2%, with more than 360 companies expected to experience a year-over-year drop in earnings.

There are a lucky few that are forecasting actual earnings growth compared to last year:

Homebuilders. First off, conditions were already deteriorating and mortgages were hard to come by last year. Secondly, more new and existing home sales translates to a more stable housing market.

• SPDR S&P Homebuilders (NYSEArca: XHB): up 35.4% year-to-date

Insurance. Insurance companies can potentially pull off double-digit growth. Some firms can bounce back higher from prior-year losses while others may see true growth. Property and causality insurers have been sparred by a calm hurricane season so far, and most insurers benefited from a recovering financial market.

• KBW Insurance (NYSEArca: KIE): up 33.2% year-to-date

Health Care. The medical sector is still raking in the profits. The sector is not correlated to commodity prices and is less economically sensitive. The result is that medical companies are showing both revenues and earnings growth this quarter.

• Vanguard Health Care (NYSEArca: VHT): up 12.7% year-to-date

On the flip side, here are a few sectors that could report contractions:

Commodity. Commodity-related companies reported strong profits last year and as a result, energy and metals companies may show drops in third-quarter profits this year.

• iShares Dow Jones U.S. Oil & Gas Ex Index (NYSEArca: IEO): up 33.8% year-to-date

• PowerShares DB Base Metals (NYSEArca: DBB): up 53.7% year-to-date

Banks. Many banks still remain unprofitable. High joblessness, high level of foreclosures and poor real estate market all affect banks. The result is a projected report of losses for the sector.

• iShares Dow Jones U.S. Financial Sector Index Fund (NYSEArca: IYF): up 20.1% year-to-date

Max Chen contributed to this article.

Since the market lows on March 9, financials have rebounded handsomely, up as much as 140% since then. Most of them are perched firmly above their 200-day moving averages, as well.

There are a variety of ETFs that cover the sector. Because of the sector’s high profile, it is essential to know exactly what is under the hood of these ETFs.  The sector can be  subdivided into the following: broad-based, regional banks, capital markets, insurance and REITs.  John Gabriel of Morningstar breaks down the sector and provides an in-depth analysis of industries that constitute the financial sector.

The most widely held and common financial ETFs are broad-based financials, which include the SPDR Select Sector Financial (NYSEArca: XLF) and the Vanguard Financials (NYSEArca: VFH). Banks constitute nearly half of the asset base of XLF and 42% of VFH, insurance companies account for nearly 18% of XLF and 22.5% of VFH and capital markets soak up about 19% of both XLF and VFH.

In regard to the banking sector, some common ETFs investors look at are the SPDR KBW Bank (NYSEArca: KBE) and the PowerShares Dynamic Banking (NYSEArca: PJB). KRE is heavily exposed to banks operating in the Pacific region, nearly 25% of its assets, whereas PJB holds about 6% of its assets in this region.  Additionally, KRE is the only regional bank ETF which doesn’t hold stakes in large money center banks, whereas 10% of PJB’s assets are allocated to this specialty.

As for capital markets, investors can grab exposure to exchanges alongside brokers, money managers, and former investment banks through the SPDR KBW Capital Markets (NYSEArca: KCE) and the iShares Dow Jones US Broker-Dealers (NYSEArca: IAI). Both funds are nearly identical, except that KCE includes a sampling of traditional asset managers in its mix.

When it comes to insurance, investors can grab exposure through the PowerShares Dynamic Insurance (NYSEArca: PIC), SPDR KBW Insurance (NYSEArca: KIE) and the iShares Dow Jones U.S. Insurance (NYSEArca: IAK). The major difference between these ETFs mainly lies in their exposure to life insurers.  PIC has 3% of its assets to the subindustry, whereas KIE and IAK have 22% and 23% allocated to life insurers, respectively.

As for real estate investment trusts (REITs), the most common ETFs include the iShares Dow Jones U.S. Real Estate (NYSEArca: IYR) and the Vanguard REIT Index (NYSEArca: VNQ). A big difference between these two ETFs is that IYR contains mortgage REITs and unconventional holdings such as timber REITs and real estate services firms while VNQ limits itself to primarily conventional REITs.

In addition to knowing what an ETF holds, we suggest one watch the trendlines and have a strategy as this sector continues its recovery, as well.

For more stories on financials, visit our financial category.

Kevin Grewal contributed to this article.

One positive economic indicator was the result of  a report which indicated that New-York area manufacturing activity and industrial production contracted less than economists has expected; the number rose to -4.55.  They also shrank less than earlier in the year, a trend that has been seen across the board in economic data: the economy continues to deteriorate, but at a slower pace.

On yet another positive note, consumer confidence rose to its strongest level since the demise of Lehman Brothers in September. The Reuters/University of Michigan Survey of Consumers indicates that  a preliminary consumer confidence index for May is at 67.9, up from 65.1 in April and above the 67 that economists anticipated.  The survey indicates that confidence rose because consumers have come to the conclusion that the economy is in its final stages of contraction and their own personal finances would remain dismal, forcing them to keep personal spending at low levels in the near future, states Chris Reese of the Associated Press.

More signals that the worst phase of the recession may be over came from a report that indicated that U.S. consumer prices remained flat in April. The unchanged Consumer Price Index was expected after falling 0.1% in March.  As a result, the Consumer Staples Select Sector SPDR (XLP) was up nearly 0.5% in intraday trading, despite being down 4.9% year-to-date.

From a global perspective, things don”t look as sunny across the pond.  The economy in the 16 countries in the eurozone shrank by a whopping 2.5% in the first quarter as European exports have halted.  European governments are hoping that big interest rate reductions by central banks, increased government spending and efforts to prop up troubled banks will boost their economies and mark the first quarter of the year as the low point of the recession, states Pan Pylass of the Associated Press.  Despite  this news, the iShares S&P Europe 350 Index (IEV) was up nearly 0.1% in morning trading. It’s down 2.7% year-to-date.

In yet another attempt to help ailing companies shore up more capital, the Treasury Department agreed to extend nearly $22 billion in bailout funds to major life insurers.  Some of the insurers expected to receive funds are The Hartford Group (HIG), Allstate (ALL) and Prudential Financial (PRU).

The funds will come from the TARP bailout fund, which was originally constructed to purchase toxic loans on the books of banks that were inhibiting their ability to make loans. The fund has quickly morphed into a capital backstop fund that has been used by the Treasury Department to make loans to the automotive industry and now insurers.  The news sent the SPDR KBW Insurance (KIE) up nearly 1% in morning trading, despite being down 3.4% for the year. Allstate is 4.3%.

The Dow Jones Industrial Average was up 0.4%, the S&P 500 was down 0.1% and the Nasdaq climbed 0.5% in morning trading.

Kevin Grewal contributed to this report.

Investment losses are rampant, and long-term-care insurers are also feeling the burden of higher claims, reports M.P. McQueen for The Wall Street Journal. Regulators have stepped in to impose moratoriums on policyholders taking cash out of policies or trading them in for cash after more than half a million people in more than 30 states provided higher claims in such areas as life insurance and annuities.

Consumers are now looking deepening into the financial health of their insurers, especially with media coverage over financial-strength ratings, the main gauge used to determine an insurer’s ability to pay claims. The industry assures us that the ratings remain strong or very strong.

But, more than a dozen major insurers have seen ratings downgrades, with some dropping to levels reflecting weak financial  health. The continuing investment losses are also hurting the industry’s ability to pay claims and many clients may have to endure higher premiums with more stable and secure insurers.

Although AIG has gotten most of the press, major insurers like MetLife (MET) and Prudential (PRU) have all been hit hard with sinking shares and ratings downgrades, although their ratings still remain strong.

• KBW Insurance (KIE): down 28.3% year-to-date

In the banking industry, the focus of the nation’s attention rests on the 418 unnamed recipients of bunuses paid out by AIG (AIG) after the company received $170 billion in taxpayer’s money, remarks David Stout for The New York Times. The Democratic-led House OK’d a bill to deliver a 90% tax on bonuses given to employees at AIG and other firms bailed out by taxpayers with family incomes above $250,000.

These groups have historically been known to lead market recoveries, but then again, this isn’t a typical market.  Last Friday was a promising day for the Hartford Investment Group (HIG), Travelers (TRV), Chubb Corp (CB), PartnerRe Ltd. (PRE), and SPDR KBW Insurance ETF (KIE), which have all gained tremendous ground from its bottomed-out values seen in October, states Michael Kahn at Barron’s. KIE is down 50.5% year-to-date.

Kahn also suggests that the price of KIE made a lower low in November, but indicators as the relative strength index made a higher low suggesting waning downside momentum and a turnaround.  Another good sign is that the ETF withheld short-term resistance when the market dipped 8%, indicating that demand is outpacing supply. Lastly, the ETF is in an elite group of funds in that it is edging close to its 50-day moving average, a strategy which we use to determine whether to consider an index or stock in this market recovery.

This is a vast improvement when compared to the troubles that the industry faced earlier on the year, forcing the Federal Reserve to bail out the industry’s largest player, American International Group (AIG). AIG isn’t done yet, either: they face another $10 billion in losses, report Serena NG, Carrick Mollenkamp and Michael Siconolfi for the Wall Street Journal.

When analyzing the sector, it is important to be mindful that it is very broad and not all groups within it are strong and making a comeback.  Some other ETFs to consider are:

iShares Dow Jones US Insurance (IAK): down 55.2% year-to-date

PowerShares Insurance Portfolio (PIC): down 22.2% year-to-date

According to VIX and More, financials, homebuilders and consumer discretionary stocks and funds can be used as a gauge of the health of the economy.

In the last few weeks, financials have been the most consistently strong sector, VIX and More says. The Financial Select Sector SPDR (XLF) is down 52.9% year-to-date, but is now 45.6% above the market’s Nov. 20 low.

Insurance and capital markets are enjoying some impressive gains since the November lows, as well. One insurance ETF, SPDR KWB Insurance (KIE), is currently down 50.4% year-to-date, but is up 43% off the market low.

Regional banks and one related ETF, SPDR KBW Regional Banking (KRE), has been acting more lethargic lately. This financial sub-sector enjoyed a measure of immunity from the collapse for much of this year. However, because it wasn’t as badly beat up as other areas in this sector, its recent performance may not have the “wow” recovery factor that the others might. It’s down 20.8% year-to-date and up 20.1% since the market low. It should be noted that this fund is just a hair below its 50-day moving average – closer than some of the other financial sector funds.

In layman’s terms, a credit default swap (CDS) is a credit derivative contract between two counterparties, in which the buyer makes payments to the seller and in return receives a payoff if an underlying financial instrument defaults.

The beauty of this innovation was that investors didn’t mind owning corporate debt which, in turn, lowered the cost of capital.  The failure of big banks and American insurers, such as AIG (AIG) and lack of transparency resulting in no one really knowing the extent of investors exposure to CDS’s has lead to the demise of the CDS, states the Economist.

Some argue that the CDS should be completely abolished, while others believe that reform is the next step. It may take years before the markets can view CDSs with some perspective.

The impact of the CDS market is far-reaching. Among ETFs impacted in one way or another include:

• SPDR KBW Insurance (KIE): down 51.49% year-to-date

• iShares Dow Jones US Insurance (IAK): down 55.52% year-to-date