Boeing had been planning to ramp up production of its 777 jet from five per month to seven per month in early 2012. That move will now happen about six months earlier, in mid 2011. The planned production hike of the 747–from 1.5 jets per month to two per month–will now occur in mid-2012 instead of mid-2013. “Market improvement and our conservatively managed approach to production have put us in a position where we see it necessary to raise aircraft output,” the company said. “Increasing our rate is the right thing to do to support our customers.”

Boeing’s announcement comes less than two weeks after rival Airbus announced that it is planning to increase production of its A320 plane from 34 aircraft per month to 36 starting in December, giving investors confidence in a sector that a recovery in the airline industry is underway.

Aerospace & Defense ETFs On The Move

Boeing’s assessment of the aircraft industry sent aerospace and defense ETFs higher on Friday, one of the few bright spots on an otherwise grim day on Wall Street. The iShares Dow Jones U.S. Aerospace & Defense Index Fund (ITA) added about 1% in morning trading, while the PowerShares Aerospace & Defense Portfolio (PPA) added about 0.30%.

ITA is linked to the Dow Jones U.S. Select Aerospace & Defense Index, a benchmark that measures the performance of manufacturers, assemblers, and distributors or aircraft and parts, as well as defense providers. Boeing is ITA’s largest individual holding, accounting for about 8.2% of holdings. Among the other 31 components are United Technologies (8.1%), Lockheed Martin (6.1%), and Northrop Grumman (5.6%).

PPA is linked to the SPADE Defense Index, a benchmark tracking the performance of companies involved in development, manufacturing, operations, and support of defense, homeland security, and aerospace operations. Boeing is also the largest component of PPA, accounting for about 8% of total assets. While there is significant overlap between the holdings of PPA and ITA, these funds have a number of differences. PPA currently has about 57 holdings, compared to 32 for ITA (see Aerospace & Defense ETFs Head-to-Head: ITA vs. PPA).

Aerospace and defense ETFs have surged over the last year, boosted by a combination of continued strong demand for defense products and more recently an improved outlook for the airline industry–a sector that appeared to be on the ropes several times over the last two years. The Claymore/NYSE Arca Airline ETF (FAA) is up more than 100% over the last 52 weeks. FAA tracks the NYSE Arca Global Airline Index, a benchmark consisting of global passenger airline companies that make up the customer bases of Boeing and Airbus.

Disclosure: No positions at time of writing.

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Most notably, Dodd gave the Fed the power to monitor large financial companies, a change from previous versions. Treasury Secretary Timothy Geithner and other Fed officials reportedly lobbied Dodd in recent weeks to expand the central bank’s power. Dodd withdrew a previous draft in November after Republicans objected to an independent consumer protection agency and a single bank regulator incorporating powers of the Fed, FDIC, Office of the Comptroller of the Currency, and Office of Thrift Supervision.

Other highlights of the bill include:

• Establishment of a new consumer protection agency within the Federal Reserve
• Allow the Fed to examine any bank with assets of $50 billion or more
• Establishment of a $50 billion fund to pay for future collapses
• Increased capital requirements for banks
• Hedge funds with over $100 million in assets would be required to register with the SEC and disclose financial data
• Banks would be limited from investing in or sponsoring hedge funds or private equity funds
• Shareholders would have a nonbinding “say on pay” for company executives
• Government would maintain power to seize failing financial institutions

Despite the potentially serious ramifications for Wall Street banks, many financials ETFs finished trading Monday about where they began, perhaps an indication of skepticism surrounding the odds that the most recent version will ultimately become law. Dodd was unable to gain support from Republican members of the Senate Banking Committee, an ominous absence in an increasingly-partisan Washington. Democrats are one seat short of a filibuster-proof majority, setting up another showdown over a piece of legislation aimed at bringing about a comprehensive overhaul.

The Financial Select Sector SPDR (XLF), which counts JP Morgan, Bank of America, Goldman Sachs, and Citigroup among its largest holdings, finished the day unchanged. Volume on Monday was about 70% of the average daily trading volume, suggesting that investors saw nothing unexpected or earth-shattering in Dodd’s latest draft. Many critical details of the plan were released over the weekend, giving investors a preview of the full version, and Monday’s release was apparently not vastly different from investor expectations.

The SPDR KBW Bank ETF (KBE), which seeks to track the performance of the KBW Bank Index, finished the day up nearly 0.30%, making it one of the best performers on Monday. KBW’s holdings include a number of firms that could potentially be impacted by the overhaul plan.

Disclosure: No positions at time of writing.

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In other news for the industry, fertilizer maker CF Industries Holdings Inc. (CF) said it will buy rival Terra Industries Inc. (TRA) for more than $4.6 billion in cash. This came after CF beat out rival Yara for the firm, which helped to send CF shares higher by close to 8%. This recent bidding war has led to increased speculation over further consolidation in the fragmented industry, which has helped to boost shares across the fertilizer sector. According to Chief Executive Joergen Ole Haslestad “consolidation of the fertilizer industry worldwide is far from over,” which should be good for agribusiness shareholders in the short to medium-term.

Agribusiness ETFs On The Move

Currently, there are two ETFs that focus on the agribusiness sector, including the Market Vectors Agribusiness ETF (MOO) and PowerShares Global Agriculture Portfolio (PAGG). Both of these funds have significant allocations to the agricultural chemical industry. MOO allocates roughly 44% of its assets to the sector while PAGG currently has a similar amount in the  broader industrial materials sector. For individual holdings, MOO has 7.7% in POT while PAGG has almost 8% in the firm. MOO finished Friday up 2.0%, while PAGG gained 1.9%.

For more ETF news, sign up for our free ETF newsletter.

Disclosure: No positions at time of writing.

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Despite the ongoing job drain, the French economy has weathered the recent downturn better than many of its neighbors. Since Sarkozy took office, French unemployment has risen 22 percent above its May 2007 level, while joblessness across the 16-country euro zone rose 34 percent in the same period and the United States’ rose 119 percent, said finance minister Christine Lagarde.

Nevertheless, the increase in unemployment is not good news for Sarkozy and his fellow conservatives ahead of regional elections in France. Rival parties are likely to use this data as proof that current polices are not effective on the issue of unemployment and that reforms, such as those proposed a decade ago that would limit the amount of hours people could work to 35 per week, might see renewed support. While these policies would probably help to decrease the unemployment rate, they would also probably increase the perception that France has one of the most static job markets in the developed world, which would discourage further foreign investment.

Although many funds have material allocations to French equities, the iShares MSCI France Index Fund (EWQ) focuses exclusively on French companies. EWQ tracks the MSCI France Index, a benchmark consisting of companies that trade on French exchanges or do a majority of their business in the country. Like most of developed Europe, French equities markets have suffered in 2010; EWQ has posted a loss of about 6% since the beginning of the year. This news, which only had a modest negative effect on EWQ, only adds to the issues that the economies of Europe are facing as the drama in Greece continues to play out and fiscal deficits reach record levels.

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Disclosure: No positions at time of writing.

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Late on Sunday, Chilean central bank president Jose De Gregorio announced that Chilean stock markets would operate normally Monday, with the opening bell scheduled to ring at 9:30 a.m. local time. “The payment and settlement systems are operational. This will allow financial markets to operate normally on Monday,” said De Gregorio in a brief statement. Elsewhere in Santiago, some signs of a return to normalcy were visible: the airport had resumed operations and several shops were open for business. In towns close to the epicenter, looting has already become a major problem, and several areas are under military control and strict curfews. The government reportedly reached a deal with Chilean supermarkets to give away basic goods in an effort to prevent looting and efficiently provide relief services.

The massive earthquake presents a tremendous obstacle to an economy that had recorded several major milestones in recent years. Bachelet, a popular president credited with guiding Chile through the global financial crisis, is in her final weeks in office, prohibited by the Chilean constitution from serving back-to-back terms. She is due to be replaced by billionaire conservative Sebastián Piñera on March 11. In a televised speech, Bachelet said dining halls in public schools would soon be equipped to serve two million meals a day in devastated regions, adding that the government would likely seek international aid for field hospitals and rescue workers.

After being elected in 2006, Bachelet’s popularity took an initial hit when her government came under pressure to spend some of the windfall earnings resulting from high copper prices. Bachelet’s refusal to spend carelessly paid big dividends when the global financial crisis set in, as government coffers were flush with cash accumulated over previous years. Chile implemented one of the world’s largest stimulus plans, including cash stipends for the poor and massive infrastructure spending. Chile’s economic fortunes depend in large part on demand for copper, one of the country’s most abundant resources. But several areas of the economy have expanded in recent years, most notably the financial industry.

Chile’s GDP contracted by nearly 2% in 2009, and the central bank had previously been expecting the economy to expand by 4.5% to 5.5% in 2010. Economists expect the earthquake to shave between 100 and 200 basis points off of 2010 growth, and anticipate a delay to interest rate hikes that had been expected to begin in coming months.

Chile ETF

Investors looking to gain exposure to South America have historically gravitated towards Brazil, a member of the now famous BRIC bloc of economies expected to account for a significant portion of global growth in coming decades. But in recent years, a number of ETFs have popped up offering targeted exposure to other equity markets in the region, including the FTSE Colombia 20 ETF (GXG) and All Peru Capped Index Fund (EPU). In addition to these funds, the MSCI Chile Index Fund (ECH) has become a popular way to efficiently access South American stocks. Since its launch in late 2007, ECH has accumulated nearly $400 million in assets, and currently trades more than 150,000 shares per day.

ECH is designed to replicate the performance of the MSCI Chile Investable Market Index, a benchmark that consists of stocks traded primarily on the Santiago Stock Exchange. Santiago is located about 200 miles northeast of the quake’s epicenter, thereby avoiding the worst of the disaster. But the capital still saw extensive damage. Following the quake “a car dangled from a collapsed overpass, the national Fine Arts Museum was badly damaged and an apartment building’s two-story parking lot pancaked, smashing about 50 cars whose alarms rang incessantly,” according to an AP report.

ECH currently consists of 32 individual holdings, the largest of which (13.6% of holdings) is Empresas Copec SA, the Chilean energy and forestry company. Not surprisingly, ECH is tilted most heavily towards the utilities, materials, and industrials sectors. As of Friday, ECH was up about 3.6% on the year and almost 70% over the past 52 weeks.

Copper ETF On The Move

The impact of the devastating quake has already been felt in global commodity markets. Chile is one of the world’s largest producers of copper, and prices of the widely-used metal soared in electronic trade screening on Sunday night. Analysts noted that the impact on copper supplies could be limited because southern parts of Chile were the hardest hit. Most mining operations are located in the north of the country. “Still, there are reports of at least some disruptions,” writes Allen Sykora. “Additionally, even if mines suffer limited damage, analysts said, there are still other worries, such as availability of electricity and fuel, plus transportation of metal to the market, at least in the short term.”

As of Sunday night, the possibility of supply disruptions in Chile had caused copper contracts to jump by about 5% on the COMEX division of the New York Mercantile Exchange. Copper contracts are a component of several metals ETFs, including the PowerShares DB Based Metals Fund (DBB) and UBS E-TRACS CMCI Industrial Metals ETN (UBM). The iPath Dow Jones-UBS Copper Total Return ETN (JJC) consists exclusively of copper futures contracts, and figures to open significantly higher Monday. JJC has already gained more than 100% over the lat year (see this guide to copper ETFs).

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Disclosure: No positions at time of writing.

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Some are even calling for the end of the euro or are pushing for stronger members, such as France and Germany, leave the common currency before it drags down their economies too. On the other end of the spectrum, some economists have proposed that weaker countries, such as Spain, could actually benefit from leaving the euro zone. Such a move would permit a devaluation that would instantly increase global competitiveness and spur the national economy.

All of these concerns have chipped away at the value of the euro since hiting a 52 week high of $1.51 in late November. In fact, the euro has lost more than 10% against the dollar since the first of the year. While there are some obvious beneficiaries to a weak euro, such as PowerShares DB USD Index Bullish Fund (UUP), weakness in the currency could potentially impact several other ETFs as well. Below, we highlight five ETFs that could be impacted by the euro’s future.

iShares MSCI Germany Index Fund (EWG)

As the second largest exporter in the world and by far the largest exporter in the EU, Germany stands to greatly benefit from a weaker euro. As the French Finance Minister recently pointed out, a weak euro is good for exporters, and Germany’s inclusion in the euro zone has likely prevented exports from becoming uncompetitive in the global markets. EWG contains 51 firms that are based in Germany and some of its largest holdings include industrial giants and exporters. Siemens (9.9%), pharmaceutical giant Bayer (7.4%), and BASF (6.9%) all have big allocations in the fund. For sectors, the largest is financials at 18.6% but industrials, materials, and consumer discretionary firms combine to make up nearly 40% of the fund.

Claymore/NYSE Arca Airline ETF (FAA)

Many destinations in Europe are among the most popular in the world for tourism, and a weak euro makes sightseeing in Paris or Rome much more attractive to American consumers. A stronger dollar could also slice into oil prices, which would boost profits for airlines. One option to play this trend is FAA, which focuses on passenger airlines around the world. Even though the fund has allocations to European and Asian airlines, the vast majority of its assets, 75%, are in American airlines that could benefit from a cheaper euro zone.

iShares Barclays 20 Year Treasury Bond Fund (TLT)

Recently, there has been talk of sharply downgrading Greek debt below its current rating of BBB+. This could push Greek debt below the investment grade threshold, which would have a devastating effect on interest rates in Greece. Furthermore if the trouble spreads to other, larger countries, such as Italy and Spain, it could further drag down the euro and make investors wary of investing in euro-denominated bonds. This could cause an exodus from EU bonds for the relative safety of U.S. Treasuries. TLT focuses on long-term treasury bonds, which in addition to benefiting from potential deflation (see Five ETFs To Own During The Great Deflation) stand to gain the from increased fears over the state of the euro zone. Of course, TLT and other long-term bond ETFs will also be impacted (perhaps more significantly) by the Federal Reserve’s actions.

Claymore/Robb Report Global Luxury Index ETF (ROB)

A falling euro makes goods from Europe less expensive in foreign currencies, which will make it easier for consumers, especially in North American and emerging Asian countries, to consume luxury goods. This could boost sales for the many luxury firms that are based in continental Europe, particularly those that generate a major portion of their revenue from overseas. ROB focuses on these luxury goods with a global scope, holding 32 different securities, the vast majority of which are in the consumer discretionary sector. As far as European holdings go, ROB has 27.9% in France, 12% in Germany and 7% in Italy. With emerging Asian consumers and a weaker euro making the products of nearly 45% of this fund’s holdings cheaper, the future could be bright for ROB and its European exporters.

IQ ARB Merger Arbitrage ETF (MNA)

When the euro was strong relative to the dollar, we saw a slew of hostile takeovers from European companies, such as the acquisition of Anheuser-Busch by Belgian beer giant InBev. A strong dollar may result in a reversal of this trend that will see a wave of U.S. buyouts of European companies (Kraft’s Cadbury plan indicates this may already be under way). If M&A activity does ramp up, MNA could become an interesting play. This ETF that seeks to achieve capital appreciation by investing in global companies for which there has been a public announcement of a takeover by an acquirer. The fund does this by owning certain announced takeover targets, with the goal of generating returns that are representative of global merger arbitrage activity. In addition, the fund includes short exposure to global equities as a partial equity market hedge, currently in the form of the ProShares Ultrashort MSCI EAFE (EFU).

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Disclosure: No positions at time of writing

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Most stocks tend to do very poorly in a rising interest rate environment due to the higher borrowing costs and the increased attractiveness of other investment vehicles, such as CDs. However, there are still several ways for investors to make money when rates inevitably rise with ETFs. Based in part on a detailed report that examines how various asset classes and sector perform during various stages of the tightening cycle, we have come up with ten ETFs that could benefit once the Fed eventually starts raising rates:

1. Short Treasury: ProShares Short 20+ Year Treasury (TBF)

An increase in the Fed Funds rate has a ripple effect throughout the economy. One of the first securities to be impacted are Treasury bonds, since market rates will obviously rise in tandem with the interest rate hikes. This generally sends bond prices lower, since the fixed coupon rate they offer becomes less attractive relative to new issues at higher rates. This is especially true for longer-term securities that are more sensitive to interest rate changes. One ETF that takes advantage of this is TBF, which seeks to deliver the inverse of the Barclays Capital U.S. 20+ Year Treasury Index. Should interest rates rise, investors in TBF could benefit.

2. Long Dollar: PowerShares DB USD Index Bullish Fund (UUP)

Worries about a potential debt crisis in the euro-zone have given the dollar a boost in recent weeks, and the greenback could get another boost from a hike in interest rates. Higher rates make dollar-denominated fixed income investments more attractive, thereby increasing demand for the currency against major rivals. The key to this fund’s performance may be the relative increase of U.S. rates: if the Fed hikes rates before other developed economies, the U.S. dollar could appreciate and pump up UUP.

3. WisdomTree International Hedged Equity Fund (HEDJ)

If a stronger dollar is in the future, most international investments could suffer from some adverse exchange rate impacts, as gains in local markets will translate to fewer dollars. HEDJ alleviates this problem by maintaining a dollar-hedged investment in the EAFE region, trimming away the currency risk of international investing.

Developed market equities may or may not perform well as rates rise, but the prospect of a rallying dollar highlights an issue that most investors ignore when making international equity allocations. For more about how HEDJ works and how it may be beneficial to international investors, see this feature.

4. HOLDRS Merrill Lynch Pharmaceutical (PPH)

According to a Merrill Lynch study, one of the sectors of the market that generally does well both in the early and late phases of a tightening cycle is the pharmaceutical industry. While the reasons for this outperformance are up for debate, some argue that pharmaceutical firms are able to better take advantage of inflationary conditions that are generally prevalent in early stages of a tightening cycle and are able to match rising costs with increased prices. Pharma is also a defensive play since consumers are unlikely to cut back on medicine and related products, a potential boost in the late stages of a tightening cycle.

5. Vanguard Information Tech ETF (VGT)

Hardware and software firms have also generally performed well during the early part of a tightening cycle. As firms see the increased cost of hiring new workers and expanding production lines thanks to increased borrowing costs, some turn to information technology in order to help keep costs down and make processes as efficient as possible. Funds like VGT, which consists of stocks such as Cisco and IBM, potentially stand to benefit as firms look to technology to cut costs before borrowing more money at increased rates.

6. Money Market ETFs

For investors looking to reduce volatility and fearful of volatile equity markets, money market ETFs may become an increasingly attractive option. While most money market funds are currently offering near-zero yields due to record low interest rates, a spike in rates or inflation could send the yield for these short term instruments higher, offering investors a safe place to stash cash while most stocks and bond prices presumably take a short-term hit. See a head-to-head comparison of money market ETFs.

7. PowerShares Dynamic Leisure & Entertainment Portfolio (PEJ)

In the initial stages of a rate hike, leisure and entertainment stocks stand to benefit since these firms are generally able to use inflation to obtain better pricing power (and profits) for hotels and other leisure activities. These types of securities also generally underperform in the six months preceding a rate hike, which could allow investors to buy in at discounted prices and “cruise” to gains as inflation hits.

8. PowerShares Dynamic Media (PBS)

A curious outperformer in a rising rate environment is the media sector. In fact, the early stages of a rate hike cycle seems to be the only time that media stocks outperform the general market. A possible reason for this is that since inflation is usually high in the early phase of a tightening cycle, debt-laden media firms are able to pay off obligations more easily, since the market value of such debt drops. Moreover, since many media firms are not looking to borrow further, it is possible that they are not as affected by the uptick in borrowing costs.

9. SPDR S&P Retail ETF (XRT)

Another historical beneficiary of interest rate hikes is the retail sector, as the process of buying goods at today’s prices and selling them later at more inflated ones expands profit margins. However, as consumers buckle down to face high interest costs late in the cycle, retail ETFs tend to struggle since more consumer money must go to debt payments instead of buying discretionary items.

10. Market Vectors Steel Index ETF (SLX)

Steel firms are generally able to pass on inflationary pressures to consumers, so they are able to more easily weather interest rate hikes. Since steel production tends to be a capital-intensive business, most firms have high levels of debt and benefit from the initial inflation and its effects on their debt loads. However, later in the tightening cycle steel stocks tend to underperform due to decreased demand, as most steel consuming firms cut down on capital heavy projects in order to avoid high debt costs. For this reason, investors must be careful when looking at steel stocks over a full interest rate cycle.

For an in-depth look at interest rates and how they affect equities, see this report from the last time the fed raised rates. For more actionable ETF investment ideas, sign up for our free ETF newsletter.

Disclosure: No positions at time of writing.

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Warren Buffet once famously advised investors to”be fearful when others are greedy and greedy when others are fearful.” With waves of fear sweeping through global markets, those who have taken this mantra to heart are presented with several buying opportunities. Below, we highlight five funds that are down but not out–ETFs that have been battered throughout the first six weeks of 2010 but have potential to deliver strong returns for bargain hunters willing to take on some risks.

Global X China Materials ETF (CHIM)

YTD 2010 Performance: -17.0%

Why It’s Down: Global commodity prices have plummeted as fears over a debt crisis in Europe and scaled-back lending in China have ramped up. China’s biggest bank has said that it will curb lending in order to help prevent an asset bubble from forming in real estate, both industrial and residential. While perhaps good for the Chinese economy in the long-run, this news has pushed down the demand for industrial materials such as copper, which is a critical component in housing. CHIM’s holdings include producers and miners of steel, iron, copper and gold, many of which have seen prices and demand sapped by expectations of a stimulus unwinding.

Why It Might Not Be Out: China recently overtook Germany as the world’s top exporter, and the Chinese economy continues to expand at rates that far exceed the developed world. There are more specific reasons to be bullish on China’s materials sector. Just over 8% of China’s imports are ores and metals, suggesting that the domestic basic materials industry has plenty of room to grow. Also, despite the fact that China produces more coal than any other country by far, it does not even rank in the top 15 for coal consumption per capita. As the trend towards urbanization in China continues and the country’s middle class swells in size, demand for materials to build urban housing and infrastructure could surge.

Market Vectors Solar Energy ETF (KWT)

YTD 2010 Performance: -17.7%

Why It’s Down: A sharp decrease in commodity prices has made investment in solar less attractive, while continued economic turmoil has kept the climate change initiative on the back burner. With governments around the world struggling with record deficits, state subsidies for alternative energy industries has begun to wane. Germany, historically home to a booming solar energy industry, recently announced major reductions to solar energy subsidies and incentives, creating a more difficult path to long-term sustainability.

Why It Might Not Be Out: Germany may have set the stage for other developed markets to scale back their support of solar power, but China is eagerly positioning itself to become the new leader in green technology. Through various government programs, China is subsidizing the majority of construction and connection costs for both on-grid and off-grid solar power plants until 2011, and has established the lofty goal of increasing its solar capacity from 50 megawatts in 2008 to at least 10 gigawatts by 2020.

iShares MSCI Spain Index Fund (EWP)

YTD 2010 Performance: -14.0%

Why It’s Down: With Greece’s public finances in ruins, many investors have identified Spain as the next weakest link in the euro-zone chain, sending Spanish equities plunging. Spain’s unemployment rate of 18.8% is cause for concern, as are debts that have doubled over the past year. While much of the Euro zone has resumed marginal economic growth, Spain remains mired in a recession, and is expected to stay there through at least 2011. “We hear a lot about how Spanish banks were prevented from purchasing American toxic assets,” said Fernando Broner, an economist at the Barcelona-based Center for Research in International Economics. “But they’ve managed to create their own toxic assets.”

Why It Might Not Be Out: It appears that Greece’s EU neighbors are prepared to step in and guarantee the troubled nation’s debt, significantly reducing the likelihood of a debt crisis in the region. Furthermore, it appears as if Spain is taking proactive steps to prevent further deterioration of its fiscal situation; the government has announced that it will issue 34% less debt than in 2009, helping to ease market concerns.

Another item to note: EWP’s top two holdings, Banco Santander and Telefonica, account for more than 40% of the fund’s total assets. Both of these companies have seen significant growth in recent years, but it hasn’t come from Spain. Santander and Telefonica both maintain major operations in Brazil, making EWP perhaps more dependent on an improved outlook for South American stocks.

HOLDRS Broadband (BDH)

YTD 2010 Performance: -13.9%

Why It’s Down: The primary reason for this fund’s sharp decline is Qualcomm which makes up over half of the portfolio of BDH. Qualcomm slumped more than 10% in late January after noting that it sees a “subdued” economic recovery and a scaled back sales forecast, which helped to drag down the entire chip sector.

Why It Might Not Be Out: Qualcomm and other firms in BDH are poised to capitalize off of the growing smartphone market thanks to their superior wireless technology (for a more in depth analysis of Qualcomm and its strengths, see this article). After claiming the title of top performing sector in 2009, technology stocks have taken it on the chin to start the new year. But there are some reasons for hope. Of the 49 software developers, computer producers and Internet companies that reported earnings since January 11, 44 have beaten estimates. Data compiled by Bloomberg shows that tech stocks are currently trading at about 13 times estimated 2011 profits, half the median valuation since 1994.

SPDR DJ Euro STOXX 50 ETF (FEZ)

YTD 2010 Performance: -11.2%

Why It’s Down: The tables have turned in recent weeks, as concerns about defaults in a relatively narrow slice of the European economy have weighed on equity markets here in the U.S. As fiscal issues in Greece and other European economies continue to worry investors, equity markets, including firms in the more fiscally secure countries of France and Germany, have been in a freefall.

Why It Might Not Be Out: Greece makes up such a small portion of the euro-zone that even if Greece collapses, the country’s more stable neighbors should be able to handle a bailout. In the meantime, a depressed euro could benefit economies that rely heavily on exports, such as Germany and the Netherlands. It now appears as if a bailout is underway, which could help to boost market sentiment and push European equities back up. Either way the short-term future could be bright for the euro-zone.

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Disclosure: no positions at time of writing.

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Issue Overview

The People’s Republic has always been very sensitive about issues involving Taiwan, which the the communist country believes to be a “rebel province.” The Chinese hope to see the return of Taiwan to the Mainland’s control some day, much like Hong Kong, while opposing any notion of ‘”two Chinas.” As such, Beijing has applied pressure in several international forums to restrict or ban the involvement of Taiwan in any organization that would suggest status as an independent country. While hardly any countries recognize Taiwan as an independent nation, it has not stopped countries such as the United States from arming the small island with the latest military technology. In a recent deal, the U.S. has approved the sale of over $6.4 billion worth of high tech military technology to Taiwan, including 114 Patriot missiles and 60 Black Hawk helicopters. Not surprisingly, the Chinese were not pleased with this decision. “The United States will shoulder responsibility for the serious repercussions if it does not immediately reverse the mistaken decision to sell weapons to Taiwan,” said Chinese Vice Foreign Minister He Yafei.

Furthermore, Obama has stated that he intends to meet with the Dalai Lama, the spiritual leader of Tibet which has been occupied by the Chinese since the early 50’s. China considers the Dalai Lama a ‘separatist‘ and Beijing has voiced its displeasure over the upcoming meeting. “As far as Beijing is concerned, there is never a good time [to meet with the Dalai Lama],” said Drew Thompson, China Director at The Nixon Center. “But, I think, immediately on the heels of this notification to Congress of arms sales to Taiwan, it is probably going to be a bit too much for China to bear.”

Although a trade war still seems unlikely at this point, the possibility is growing as relations are put under more pressure. Should America and China find themselves in a protracted trade dispute in which tariffs rise on a multitude of products, several ETFs could see a big move.

iShares MSCI Australia Index Fund (EWA)

Australia and China have had their disputes as well over the past decade, but the countries are growing increasingly dependent on each other. While China relies on Australia to provide the country with a steady stream of minerals and resources, Australia is growing increasingly dependent on China for its growing demand for consumer goods. Should Chinese trade dip with the United States, China may look down under to Australia in order to help pick up some of the slack. This would help to improve relations between the two countries and ultimately benefit Australian equities.

Market Vectors Vietnam ETF (VNM)

If firms believe that prolonged tariffs will be imposed upon companies in China, they may try to move operations to low-cost Vietnam or chose to open up shop in Hanoi instead of Beijing. Vietnam offers multinationals cheap labor costs, a large market, and distance from the fraying relations between the two superpowers. This could allow Vietnam to sell products to both countries, allowing its manufacturing base to get a boost from any significant tariffs. This increased investment will also boost financials firms which stand to benefit from capital inflows as well as higher employment levels. The financials and industrials sectors make up more than 60% of VNM.

Global X China Consumer ETF (CHIQ)

In order to prevent a worsening unemployment situation that would be caused by American tariffs (some Chinese sources are estimating that over 100,000 Chinese would lose their jobs) China may have to significantly increase domestic consumption to pick up slack for decreased American purchases. If the government is able to spur consumption, it could have a huge impact on CHIQ which has about 21% allocated to consumer services and 28% to retail, two segments that are likely to see a boost in demand from increased spending.

Industrials Select Sector SPDR (XLI)

While tariffs are sure to hurt foreign manufacturing, they will likely help struggling American manufacturing firms that will be protected from low-cost competition in China. Firms such as General Electric and United Technology Group, which make up 18.3% of XLI, stand to benefit if double-digit tariffs like the 35% duty that was put on Chinese tires are applied to other products as well. These duties would go a long way to making American manufacturing competitive, at least domestically, which would help to boost the outlook of the entire industrials sector.

SPDR S&P Retail ETF (XRT)

A loser in this, at least in the short term, is likely to be the American consumer who depends on many products from China for consumer discretionary goods. According to some anti-Wal-Mart sources, as much as 70% of Wal-Mart goods are made in China, suggesting that high tariffs could hurt short-term profit margins at major retailers. With consumers already stretched thin, it is unlikely that many would tolerate a 30% price increase on a variety of discretionary goods, which would limit purchases to non-Chinese made goods and necessities.

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Disclosure: Eric is long EWA

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One rating that has gone down in Obama’s first year is the President’s approval rating, which is beginning to have far reaching effects on local and national elections. This has been most recently demonstrated in Scott Brown’s upset Senate win in Massachusetts, which revitalized Republican hopes of regaining control of Congress in the upcoming midterm elections.

It is against this backdrop that Obama will give a highly-anticipated State of the Union Address. The focus will reportedly be achieving job creation them without expanding the already ballooning deficit. As Obama attempts to walk an increasingly narrow tightrope  between the demands from the left (who believe he hasn’t done enough) and the right (who feel that the President’s plans are going too far), tonight’s speech should give investors some clues on what the administration will target in the upcoming months and what sectors of the economy will be most impacted.

Below we highlight five ETFs in focus ahead of Obama’s first State of The Union Address.

Municipal Bond ETFs

Next January, the Bush tax cuts are set to expire pushing the top tax rate and dividend tax up to 39.6% and the capital gains tax to 20%. If this is allowed to happen, municipal bond ETFs such as iShares S&P National Municipal Bond Fund (MUB) and SPDR Lehman Municipal Bond ETF (TFI) could be in high demand among investors in high marginal tax brackets.

Municipal bond holders generally do not have to pay any federal taxes on proceeds from these bonds, which for high-tax bracket investors will end up being 360 more basis points in 2011. However, some are calling for Obama to leave the tax cuts in place for a few more years, noting that a recession is the wrong time to raise taxes. Noted economist Arthur Laffer states that if the tax cuts are allowed to expire it could “represent a larger collapse than occurred in 2008 and early 2009″ thanks in large part to investors shifting money to be taxed in this year.

Financial ETFs

A favorite target of the Obama administration has been the “Wall Street Fat Cats” who many blame for the current economic crisis. Recently, Obama has proposed more than $100 billion in new taxes on the largest financial institutions in what is being called the Financial Crisis Responsibility Tax. This initiative would tax large financial companies 0.15% on their assets minus high quality capital such as common stock. Should Obama spend a great deal of his speech assailing Wall Street or proposing more regulations to rein in the firms, it could score him some points with voters but further strain his relationship with the financial sector. Financial ETFs in focus include the iShares Dow Jones U.S. Financial Sector Index Fund (IYF) and SPDR Bank ETF (KBE). Both of these funds, much like the larger financial sector, have seen their shares slump recently as political risks from Washington have resurfaced.

Healthcare ETFs

It remains to be seen if the Obama administration will push for healthcare reform after the Democrats’ stunning defeat in Massachusetts, which leaves them one vote short of a filibuster proof super-majority. It seems unlikely that Obama will give up that easily on what he has termed his signature domestic issue, especially considering that the House of Representatives has already passed a version of the bill. While it seems likely that any healthcare plans will have to be drastically scaled back in light of the new political realities, tonight’s speech could be an opportunity for Obama to rally the troops for one last push for comprehensive reform. Regardless of what Obama announces in his speech, it should give some direction to Healthcare ETFs especially insurers such as iShares Dow Jones U.S. Health Care Providers Index (IHF) which have the most to gain or lose from any proposals.

Retail ETFs

After receiving $200 billion back from TARP beneficiaries, Obama will reportedly propose to use the money for job creation activities. These activities which, according to CNN, will include bridge and road building, home weatherization, and small business incentives, will help to pour more money into the system and could increase middle class spending on discretionary goods. If Obama announces a plan to use the money for this purpose it could boost retail ETFs such as SPDR S&P Retail ETF (XRT) and PowerShares Dynamic Retail (PMR) which will likely benefit from the increased spending as it filters down from the government and into citizens’ pocketbooks.

Treasury ETF

The Treasury market looks to be in focus to see if Obama’s proposed discretionary spending freeze gets closer to reality. Although discretionary spending makes up a relatively small section of the budget (roughly $450 billion of the $3.5 trillion), it would be encouraging to see steps being made to reduce or at least limit the deficit. This move would likely help to calm fears of overseas investors who make up the bulk of Treasury holdings and deficit hawks that are growing increasingly worried over the nation’s balance sheet. Such a move could marginally push down Treasury yields and boost prices which would be welcomed news for Treasury ETFs such as iShares Barclays 20 Year+ Treasury Fund (TLT) or iShares Barclays 1-3 Year Treasury Fund (SHY).

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Disclosure: No positions at time of writing.

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