The American economy surprisingly picked up steam in the second quarter, thanks to resilience among consumers and businesses in the face of high interest rates. This is especially true as the GDP grew 2.4% annually from 2% growth in the first quarter.
That said, most of the ETFs will likely benefit on solid GDP numbers. ETFs like Consumer Discretionary Select Sector SPDR Fund XLY, iShares U.S. Transportation ETF IYT, iShares U.S. Basic Materials ETF IYM, Vanguard Industrials ETF VIS and Vanguard Small-Cap Growth ETF VBK are expected to outperform.
Inside the GDP Growth
A combination of factors contributed to the robust GDP growth. As more Americans got vaccinated, businesses, schools and public spaces gradually reopened, leading to a resurgence in consumer spending and bolstering the service sector, which had been adversely impacted during the pandemic.
The resumption of travel and tourism, pick-up in the manufacturing sector as well as increased business investment played a key role in driving the economic revival. Amid supply chain challenges and material shortages, American manufacturers increased production and exports, boosting industrial output and contributing to economic expansion. Meanwhile. business investments rose 5.7% annually, representing the fastest rate of growth since late 2021 as companies plowed more money into factories and equipment.
Further, moderating inflation and a solid job market fueled optimism. Inflation cooled down for the 12th consecutive month in June, with the Consumer Price Index rising 3% year over year — the lowest rate since early 2021. The economy added jobs for the 30th consecutive month, with the unemployment rate down to the historically low of 3.6%. The U.S. housing sector has also shown immense improvement, with homebuilder confidence reaching its highest level in almost a year.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose a modest 1.6% in the second quarter but declined from 4.2% growth in the first quarter (read: 5 ETFs to Ride on Soaring 2-Year High Consumer Sentiment).
The International Monetary Fund raised its forecast for U.S. economic growth to 1.8% for this year from the previous projection of 1.6%.
ETFs to Tap
Consumer Discretionary Select Sector SPDR Fund (XLY)
Solid economic growth will have a positive impact on the consumer discretionary sector, which attracts a major portion of consumer spending. As such, investors could tap the encouraging trend in the basket form through the ultra-popular Consumer Discretionary Select Sector SPDR Fund. It offers exposure to the broad consumer discretionary space by tracking the Consumer Discretionary Select Sector Index. Holding 53 securities in its basket, XLY charges 10 bps in annual fees.
Consumer Discretionary Select Sector SPDR Fund has AUM of $17.5 billion and an average daily volume of about 5 million shares. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
iShares U.S. Transportation ETF (IYT)
iShares U.S. Transportation ETF tracks the S&P Transportation Select Industry FMC Capped Index, giving investors exposure to a small basket of 46 securities. Within the transportation sector, air freight and logistics, and railroads take the top two spots with 27.8% and 25.5% share, respectively, while passenger airlines (16.6%) and cargo ground transportation (16.1%) round off target= "_blank"the next two.
iShares U.S. Transportation ETF has $1.2 billion in AUM and has a good trading volume of around 177,000 shares a day. It charges 39 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: Should You At All Fear Weak Manufacturing? ETF Areas to Win).
iShares U.S. Basic Materials ETF (IYM)
With AUM of $840.6 million, iShares U.S. Basic Materials ETF offers exposure to U.S. companies involved in the production of raw materials, including metals, chemicals and forestry products. It tracks the Russell 1000 Basic Materials RIC 22.5/45 Capped Gross Index and holds 40 stocks in its basket. The product is heavily skewed toward industrial gases and specialty chemical with 27.3% and 16.6% share of the portfolio, respectively.
iShares U.S. Basic Materials ETF charges 39 bps in annual fees and trades in a good average daily volume of around 84,000 shares a day. It has a Zacks ETF Rank #3 (Hold) and a High risk outlook
Vanguard Industrials ETF (VIS)
A rise in business investments will fuel growth in the industrial sector and thus VIS looks appealing. Vanguard Industrials ETF offers exposure to the broad industrial sector and follows the MSCI US IMI Industrials 25/50 Index. It holds about 389 securities in its basket with none accounting for more than 3.3% of the assets. From an industrial look, aerospace and defense takes the top spot at 16.1% followed by industrial machinery, supplies & components at 10.9%.
Vanguard Industrials ETF manages $4.5 billion in its asset base and charges 10 bps in annual fees. Volume is moderate as the product exchanges 111,000 shares a day on average. VIS has a Zacks ETF Rank #2 with a Medium risk outlook.
Vanguard Small-Cap Growth ETF (VBK)
Small-cap stocks generally lead the way higher on improving American economic health as these are closely tied to the U.S. economy and generate most of their revenues from the domestic market. VBK, which tracks the CRSP US Small Cap Growth Index, appears to be an excellent choice. From a sector look, technology takes the top spot at 21.2% while industrials, healthcare, and consumer discretionary round off the next three spots with double-digit exposure each (read: 5 Small-Cap ETFs Trading at a 52-Week High).
The product has amassed $14.6 billion in its asset base while trading in solid volume of around 151,000 shares. It charges 7 bps in fees per year and has a Zacks ETF Rank #1 with a Medium risk outlook.
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Free: See Our Top Stock and 4 Runners Up >>Vanguard Industrials ETF (VIS): ETF Research Reports
iShares U.S. Transportation ETF (IYT): ETF Research Reports
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
iShares U.S. Basic Materials ETF (IYM): ETF Research Reports
Vanguard Small-Cap Growth ETF (VBK): ETF Research Reports
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