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What Does US Economic Recovery Mean for Industrial ETFs' 2H21?

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The industrials sector has seen a strong start to 2021. Notably, the S&P 500 Industrials (Sector) index has gained 16.5% in the year-to-date frame in comparison to the broader S&P 500’s rise of 15.9%. The space has been getting a boost from reopening of global economies from the pandemic-led lockdowns and recovering global demand.

Will Industrial Sector Perform Well in 2H21?

The world’s largest economy is strongly controlling the coronavirus outbreak with accelerated deployment of coronavirus vaccines from several developers. According to the Centers for Disease Control and Prevention (CDC), 155.9 million people have been fully vaccinated in the United States, as of Jul 1.

Markedly, the Fed’s continued support with easy monetary policies, fiscal stimulus support and reopening of non-essential business are strengthening hopes of rapid recovery from the coronavirus-led slump.

According to the latest data, the U.S. consumer confidence surged to its highest level in about 16 months in June. The Conference Board's measure of consumer confidence index stands at 127.3, comparing favorably with an upwardly revised reading to 120.0 in May. Moreover, June’s reading surpassed the consensus estimate of 119.0, per a Reuters’ poll.

In this regard, Oren Klachkin, lead U.S. economist at Oxford Economics in New York, has said that “Consumers have plenty to be cheerful about after being cooped up at home for more than a year. Looking ahead, low COVID infections, rebounding employment, and elevated savings will buoy confidence and push consumers to spend at a breakneck pace over the summer," per a Reuters article.

Furthermore, per the Fed’s recently-released data, total industrial production rose 0.8% in May. Going on, there was a 0.9%, 1.2% and 0.2% rise, respectively, in manufacturing output, mining and utilities production. Total industrial production rose 16.3% year over year in May.

Wall Street also cheered President Joe Biden’s announcement of the White House striking an infrastructure deal with a bipartisan group of senators. According to the White House, the infrastructure deal will include $579 billion in new spending.

Going by a CNBC article, the proposal will allocate about $312 billion to transportation, with $109 billion going for development of roads, bridges and other major projects, $66 billion to passenger and freight rail and $49 billion to public transit. Notably, about $15 billion will be invested toward electric vehicle infrastructure and electric buses and transit, much lesser than what Biden initially proposed. Furthermore, $266 billion will be allocated toward non-transportation infrastructure, including $73 billion for power, $65 billion for broadband and $55 billion for water.

Meanwhile, inflation levels continue to rise in the United States. According to the Commerce Department, another major inflation indicator, core personal consumption expenditures (PCE) price index, used by the Federal Reserve to set policy, climbed 3.4% year over year in May, per a CNBC article. Notably, it registered the biggest gains since April 1992 and was on par with Wall Street estimates. 

According to a CNBC article, Fed Chairman Jerome Powell has remained bullish on the economic recovery achieved so far from the pandemic-led slump. He also maintained that high inflation levels were temporary and will return to 2% over the long term, per the same article.

However, there is no doubting the fact that the industrials sector faced disruption in global supply chains and factory close downs amid the pandemic. However, rising raw material prices due to supply-chain disruptions are still making it difficult for manufacturers to meet the increasing demand as global economies have reopened.

Industrial ETFs That May Gain

The industrial sector, which faced disruption in global supply chains and factory closedowns, is expected to rebound on recovery from the coronavirus-led slump. Against this backdrop, investors can still keep a tab on the following ETFs (see all industrial ETFs here):

The Industrial Select Sector SPDR Fund (XLI - Free Report)

The fund tracks the Industrial Select Sector Index (read: 5 Sector ETFs to Play Robust June Jobs Data).

AUM: $19.51 billion

Expense Ratio: 0.12%

Vanguard Industrials ETF (VIS - Free Report)

The fund tracks the MSCI US Investable Market Industrials 25/50 Index (read: ETFs to Gain as US Industrial Output Rises in May).

AUM: $5.41 billion

Expense Ratio: 0.10%

iShares U.S. Industrials ETF (IYJ - Free Report)

The fund tracks the Dow Jones U.S. Industrials Index.

AUM: $1.81 billion

Expense Ratio: 0.42%

Fidelity MSCI Industrials Index ETF (FIDU - Free Report)

The fund tracks the MSCI USA IMI Industrials Index.

AUM: $873.1 million

Expense Ratio: 0.08%

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