In the first half of 2023, Wall Street witnessed an extraordinary rally. The Dow Jones, the S&P 500 and the Nasdaq Composite, which are the three major stock indexes, recorded significant growth of 3.8%, 15.9%, and 31.7%, respectively.

Notably, the S&P 500 entered a new bull market. The S&P 500 and the Nasdaq Composite had their strongest performances in the first half of 2023 since 2019 and 1983, respectively. Most of the improvements were driven by the tech sector, owing to the enthusiasm for artificial intelligence (AI) and better-than-expected corporate earnings.

Easing inflation and a less-hawkish Fed also played a key role in driving markets. Inflation has moderated after hitting a 40-year high last summer but still stands well above the Fed’s 2% target. The ebbing recessionary fear was another plus for the market.

Consequently, numerous ETFs experienced a surge in value in the first half of 2023. Against this backdrop, we highlight a few ETFs below, which are likely to record strong gains in the second half even after logging upbeat returns in the first half.

These ETFs beat the S&P 500 in return in the first half and have a P/E ratio less than SPDR S&P 500 ETF Trust (SPY Quick QuoteSPY - Free Report) (i.e., less than 17.86X). These ETFs have a Zacks Rank #1 (Strong Buy) or #2 (Buy).

ETFs in Focus

iShares U.S. Home Construction ETF (ITB Quick QuoteITB - Free Report)

1H Return – Up 41.37%

P/E – 8.58X

Zacks Rank – #2

Invesco Dynamic Semiconductors ETF (PSI)

1H Return – Up 37.05%

P/E – 17.12X

Zacks Rank – #1

First Trust RBA American Industrial Renaissance ETF (AIRR Quick QuoteAIRR - Free Report)

1H Return – Up 22.7%

P/E – 14.93X

Zacks Rank – #2

SPDR S&P Transportation ETF (XTN Quick QuoteXTN - Free Report)

1H Return – Up 25.0%

P/E – 12.66X

Zacks Rank – #2

Invesco S&P Mid-Cap Quality ETF (XMHQ Quick QuoteXMHQ - Free Report)

1H Return – Up 17.41%

P/E – 9.46X

Zacks Rank – #2