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U.S. Economy Returns to Pre-Pandemic Level: 4 ETF Picks

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The American economy has been booming with growth exceeding the pre-pandemic level. This is especially true as GDP grew 6.5% annually in the second quarter, indicating the sustained recovery from the pandemic recession. Rapid vaccinations, business reopenings and trillions of dollars of government stimulus spending powered consumer spending and resulted in robust growth.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, climbed 11.8% in the second quarter after a 10.7% increase in the first quarter. The boost came from spending money on cars, food and beverages, and services like restaurants and accommodations. Business investment surged 8% year over year.

The amazing Q2 growth is likely to slow down in the second half of the year due to the fast-spreading Delta coronavirus variant all over the world. Per the recent reports from the Centers for Disease Control and Prevention (CDC), the Delta variant now accounts for 83% of new cases of COVID-19. According to the latest data by Johns Hopkins University, the United States is averaging more than 57,000 cases a day and 24,000 COVID-19 hospitalizations. There were 70,740 new cases on Jul 27 and 462 deaths (read: Delta Variant to Spark Rally in Stay-At-Home ETFs).

However, many analysts still expect the economy to grow at a robust pace of around 7% for all of 2021. That would represent the strongest calendar-year growth since 1984 and a sharp reversal from last year’s worst 3.4% economic contraction in 74 years.

That said, most of the ETFs will likely benefit on solid Q2 GDP numbers. We have highlighted four funds with a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy) that are expected to outperform in the days ahead.

Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)

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, XLY, which has AUM of $20 billion and an average daily volume of about 3.8 million shares. It charges 12 bps in fees per year and has a Zacks ETF Rank #2 (read: ETFs to Win on Strong US Consumer Confidence Levels in July).

iShares Dow Jones Transportation Average Fund (IYT - Free Report)

As vaccinated Americans are returning to leisure and amenities like restaurants, ballparks and theaters, the demand for transport will increase, propelling its ETFs higher. The popular fund in the space is IYT with AUM of $1.6 billion and an average daily volume of 250,000 shares. It offers exposure to U.S. airline, railroad and trucking companies. The fund charges 42 bps in annual fees and has a Zacks ETF Rank #2.

Invesco DWA Basic Materials Momentum ETF (PYZ - Free Report)

The strong demand for both consumer and business goods will continue to boost the materials sector. While many of the ETFs are well positioned to make the most of it, PYZ with a Zacks ETF Rank #2 looks intriguing. This ETF offers exposure to companies showing relative strength (momentum) in the basic material sector. It has amassed $207 million in its asset base while charges 60 bps in fees and expenses. Volume is low as it exchanges nearly 24,000 shares in hand a day.

Vanguard Mid-Cap ETF (VO - Free Report)

Mid-cap stocks will likely benefit given the improving economic health and worries over another wave of virus. This is because mid caps offer the best of both worlds, simultaneously allowing growth like the small caps and stability like the large caps in a portfolio. VO, which tracks the tracks the CRSP US Mid Cap Index, appears to be an excellent choice. The product has amassed $50.5 billion in its asset base while trading in solid volume of around 513,000 shares. It charges 4 bps in fees per year and has a Zacks ETF Rank #2 (read: Mid-Cap ETF Hits New 52-Week High).