Filings for unemployment benefits fell for the first time by 6,000. Economists were expecting a bigger drop, so the news was greeted with shrugs. Although it’s not thrilling, it’s being taken as a sign that the labor market is easing up. Even small improvements are moves in the right direction.

The U.S. trade deficit decreased to 6.6% in January, but the markets are going to need a little more than that after news from China. Prices in the country rose 2.7% last month from a year earlier. There probably won’t be a shift in economic policy, according to economists, but Chinese consumers might see a hike in loan rates in an attempt to tamp out inflation. That could, in turn, slow China’s growth. Claymore/AlphaShares China All-Cap (NYSEArca: YAO) is down about 1% this morning. [Play the Yuan With These ETFs.]

The news from China also hit the materials sector as investors question what monetary tightening would mean for demand for raw goods and other items China has been gobbling up for the last year-plus. Materials Select Sector SPDR (NYSEArca: XLB) is down slightly this morning. [China ETF Plays: One Country, Many Options.]

This year looks like a good year for more merger & acquisition transactions and corporations inch their way back to fiscal health. Investors may also try and weed out weaker companies in their portfolios and switch to companies with better fundamentals. However, if the economy doesn’t improve as quickly as people would expect, stock prices may take a dip. Have your strategy at the ready if that happens. The reduction in monetary and fiscal programs around the world will also dampen the stock market’s forward momentum. [How to follow trends.]

Between Jan. 15 and Jan. 22, all sectors within the broader S&P 500 index showed negative returns, writes Frank Holmes for U.S. Global Investors. U.S. Global Investors is one of the best-known gold managers in the world (for full disclosure, I’m a board member).

Performers.

• The retail food group showed the strongest gains,  jumping 5.4% for the week.
• Airliners were the second-best performers, up 3.6%. Airliners are seeing lower capacity, route optimization and increased passengers. [The key to airline's success.]
• Regional banks also outperformed, increasing 1.1%. The administration put new regulatory action on large banks, which has turned some investors toward regional banks. [Why regional banks could come out ahead.]

Laggards.

• Aluminum, diversified metals & mining and steel groups dropped 14.3%, 11.9% and 9.9%, respectively. This may mostly be a response to China’s slowing down its economic growth.
• Health care facilities group lost 15.5%. The health care bill has lost momentum after a Republican won a Senate seat – hospitals would have more business if more people had health insurance. [Health care's prospects.]
• Diversified financial services group fell 8.7%. Large banks were sold off after President Barack Obama’s proposed new regulations.

As the economy changes and grows in the coming year, there are plenty of domestic-focused ETFs to watch:

• S&P 500 SPDRs (NYSEArca: SPY)
• Health Care Select Sector (NYSEArca: XLV)
• SPDR S&P International Telecommunications Sector (NYSEArca: IST)
• Consumer Staples Select Sector SPDR (NYSEArca: XLP)
• Consumer Discretionary Select Sector SPDR (NYSEArca: XLY)
• Select Sector SPDR Utilities (NYSEArca: XLU)
• Industrial Select Sector SPDR (NYSEArca: XLI)
• Technology Select Sector SPDR (NYSEArca: XLK)
• Energy Select Sector SPDR (NYSEArca: XLE)
• Financial Select Sector SPDR (NYSEArca: XLF)
• SPDR Select Sector Fund- Basic Industries (NYSEArca: XLB)

For more information on the S&P 500, visit our S&P 500 category.

For full disclosure, Tom Lydon is a board member of U.S. Global Investors.

Max Chen contributed to this article.

Emerging market economies are expanding to their own tune and they are demanding more commodities to fuel that growth, which will put upward pressure on commodity prices for everyone, writes Harold L. Sirkin for BusinessWeek. [4 reasons to watch emerging markets.]

It should also be noted that besides the basic laws of supply and demand, there are some other factors that will also contribute to the rising cost of commodities:

• A rising middle class in rapidly developing emerging economies. Around a billion people have moved out of poverty and entered the growing ranks of consumers. The growing number of people purchasing more stuff is increasing the amount of basic commodities being consumed. And the trend will likely continue. Experts believe that as many as two billion people may join the middle-class by 2030. [What CFTC's proposal may mean.]
• Large-scale infrastructure investments in emerging economies. The large swaths of new workers in the market has prompted the need for more infrastructure projects to accommodate the movement of the masses. It is calculated that developing countries alone will account for $2.25 trillion annually over the next three years to meet infrastructure needs, which again will affect the demand for, and prices of, commodities and raw materials that will be used for the projects. [Will platinum and palladium outshine gold?]
• The emergence of a large low-income-consumer base. Many of these consumers until recently were struggling just to feed themselves. Today, they have jobs and while they’re still poor, their quality of life has improved. They’re buying tractors for the first time, moving up from bicycles to cars or scooters and getting cell phones. [Why commodity ETFs underperformed spot markets.]

For more information on commodities, visit our commodity category.

• SPDR Select Sector Fund- Basic Industries (NYSEArca: XLB)

• iShares Dow Jones U.S. Basic Materials (NYSEArca: IYM)

• iShares S&P Global Materials Sector Index Fund (NYSEArca: MXI)

• iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG)

Max Chen contributed to this article.

Investors looking to supplement a sector-diversified core U.S. equities stock holdings have several materials ETFs to choose from, including Materials Select Sector SPDR (NYSEArca: XLB), iShares Dow Jones U.S. Basic Materials (NYSEArca: IYM), Vanguard Materials ETF (NYSEArca: VAW), or iShares S&P Global Materials (NYSEArca: MXI) because of their favorable trading liquidity, expense ratio and yield, remarks Richard Shaw for Seeking Alpha.

When looking at any sector or group of ETFs, it’s important to mind several things:

• Liquidity. When you’re placing smaller orders as an individual investor, it’s important to take into account asset size and trading volume to ensure you can trade when you need to, and at a good price.
• Expenses. What’s the cost of the funds? XLB is 0.22%; IYM is 0.47%; VAW is 0.25%; and MXI is 0.48%.
• Holdings. Potential investors should also look into a fund’s holdings. XLB is the most concentrated and least diversified, IYM and VAM are successively less concentrated and more diversified, and MXI is the least concentrated. XLB holds materials companies within the S&P 500, IYM and VAW have expanded out of the S&P. MXI is the only one that has non-U.S. holdings. [How to find ETF holdings.]
• Yield. If you worry about total returns from dividend yields, it is a good idea to compare yields – yield is distributions divided by current ETF price. Lower expense ratios also result in higher fund dividends and higher total returns. All four mentioned funds have decent yields, but MXI is currently trailing the group. The yield trend shows that the four funds paid a significantly lower dividend in 2009 than in 2008. A recovering world economy will eventually translate into improved dividend yields.

Which one is best? That’s up to you. Is cost a major concern? Or is it diversity within the holdings? Perhaps you want a non-U.S. allocation. By looking at the above criteria for these or other ETFs, you can help narrow down your list of potentials to reveal one clear winner.

For more information on materials, visit our basic materials category.

• Materials Select Sector SPDR (NYSEArca: XLB): up 48.1% in 2009

• iShares Dow Jones U.S. Basic Materials (NYSEArca: IYM): up 64.4% in 2009

• Vanguard Materials ETF (NYSEArca: VAW): up 51.4% in 2009

• iShares S&P Global Materials (NYSEArca: MXI): up 60.4% in 2009

Max Chen contributed to this article.

Investors still have to decide on which industries are best positioned to perform well in the recovery, remarks Matt Krantz for USA Today. Possibly the worst thing any investor could do is jump in after sectors that have already gained, continually chasing performance.

After betting on financials and tech companies, investors are now looking for actual economic growth in the second half of the year, especially in consumer discretionary companies that make big-ticket items such as automobiles and appliances. Krantz notes, however, that investors are applying prudent techniques when picking out future winning sectors:

History. Certain sectors and certain companies do better at certain points of an economic cycle. If the past repeats itself, solid performance could come out of consumer discretionary stocks, along with materials and industrial companies. These “cyclical” sectors could gain as demand for goods picks up. Later, energy stocks could gain as companies expand to cover all the demand.

• Consumer Direct Select Sector SPDR (NYSEArca: XLY): up 30% year-to date
• iShares Dow Jones U.S. Basic Materials (NYSEArca: IYM): up 55% year-to-date
• SPDR Select Sector Fund- Basic Industries (NYSEArca: XLB): up 43% year-to-date
• Energy Select Sector Energy Fund (NYSEArca: XLE): up 17.7% year-to-date

Cycles. Growth in revenue is still down and may continue to be so in the third quarter, but some businesses could show early growth. The businesses that will perform will be the ones to stop cost cutting and start expanding. This is one of the reasons why financials may continue to benefit as demand for loans increases.

• SPDR Financial Select Sector (NYSEArca: XLF): up 23.3% year-to-date

Diamonds in the rough. Some small banks and brokers may stand out by enticing customers who have become estranged from large financial firms. Modernization of bridges and roads will lead to a boom in the infrastructure industry. Government investment into green tech will also likely help the alternative energy industry. As more companies use the internet to conduct business, business that build internet networking systems may also become in demand.

• iShares S&P Global Infrastructure (NYSEArca: IGF): up 13.8% year-to-date
• PowerShares Wilderhill Clean Energy Portfolio Fund (NYSEArca: PBW): up 28.9% year-to-date
• iShares Networking Fund (NYSEArca: IGN): up 61.7% year-to-date

Not so good. Sectors dependent on consumers may not see previous cash flows for awhile yet. Businesses such as retailers, restaurants and casinos may also continue to struggle.

Watch the trends. There’s no such thing as a “sure thing” in the markets, otherwise no one would ever lose anything. We can all guess which sectors will perform and which won’t, but reality could bear out differently. Watch the trend lines to spot the true opportunities, and have a stop loss in place, as well.

Max Chen contributed to this article.

Basic materials include such things as chemical products, forestry products and the mining and refining of metals.  They are also the providers of the raw building blocks of construction and infrastructure.  When you sit and back and assess the health of the global economy over the next few years, it lies in infrastructure and public works, states Andrew Leckey for The Chicago Tribune.  Stimulus packages in China as well as here in the United States have massive amounts of money allocated to these two areas.

Basic materials can be a great way to access the overall global economic recovery, especially for investors who may not want the volatility of a single-country emerging market fund.  To grab exposure to basic materials, take a look at the following ETFs:

• SPDR Select Sector Fund- Basic Industries (XLB): up 14.4% year-to-date

• iShares Dow Jones U.S. Basic Materials (IYM): up 18.6% year-to-date

• iShares S&P Global Materials Sector Index Fund (MXI): up 20.5% year-to-date.

For more stories on basic materials, visit our basic materials category.

Kevin Grewal contributed to this article.

The first sector that has performed remarkably well is the basic materials sector.  This sector includes industries such as chemicals, construction materials, containers and packaging, metals and mining, and paper along with forest products, states Ron DeLegge for ETF Guide.  This sector has gained ground thanks to some part in the rally of the commodities market.  The sector’s performance can be reflected through the performance of the Materials Select SPDR (XLB), which is up 23.5% year-to-date and above its 200-day moving average.

The next sector that has flourished is technology.  This sector is fairly diverse and includes Internet companies, semiconductor companies, software developers, wireless products and IT consulting services.  Some believe that this sector has posted its gains because of its ability to remain innovative, continue to keep consumers on their toes and overall financial strength.  The Technology Select SPDR (XLK) is up 19.7% year-to-date and above its 200-day moving average.

To the surprise of some, the last sector that has gained ground is consumer discretionary.  This sector is heavily dependent on consumer spending and includes apparel, consumer durables, automotive, restaurants, leisure, media and retailers.  Some suggest that this sector has rallied because consumers are optimistic of overall economic conditions. One caution: could rising energy prices once again put a damper on growth here?  The Consumer Discretionary Select SPDR (XLY) has gained nearly 11.9% year-to-date and above its 200-day moving average.

So how does one grab exposure to the aforementioned sectors, the best way is by utilizing the above mentioned ETFs.  The basic characteristics of ETFs will enable one to grab exposure to the industries while remaining diversified and keeping costs low.  This is one reason that the ETF industry saw an increase of inflows of $53 billion for the month of May.

Regardless of how well these ETFs have performed, all investors should always utilize a strategyand know exactly what you ETF holds.  After all, we can’t predict the future with certainty.

For more stories on these sectors, visit our technology, retail and consumer and materials categories.

Kevin Grewal contributed to this article.

While some sectors have become beaten-down in recent months (hello, financials and homebuilders), others have been poster children for success, reports Roger Nusbaum for The Street. Materials and energy have been two areas that have demonstrated strong potential down the line, thanks to domestic and global demand for various commodities such as steel, oil, natural gas and more.

Among the ways to access these areas include:

• Materials Sector SPDR (XLB) is down 2.9% year-to-date, but it’s outperforming the S&P 500 by 11.3%.

• iShares S&P Global Materials Sector Index (MXI) is down 1.8% year-to-date, but could benefit down the line from its global outlook. The United States is 20.3% of the fund

• iShares Dow Jones Basic Materials (IYM) is up 2.7% year-to-date.

Selecting sectors is one of the key strategies in trend following, because as the current situation shows, while there are areas trending down for the time being, other areas are moving up. It’s just a matter of spotting them, but trust us – they’re there!

When choosing a sector, or an ETF to represent it, it is wise for investors to be aware of the current trends in the market that will help move or hinder that sector. This way, investors can move with any changes that are occurring.

These funds are currently below their 200-day moving averages, so you will want to hold off on considering them until they turn around.