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GDP, Manufacturing Data Soften: ETFs to Play the Dip

Sanghamitra Saha

The U.S. manufacturing sector slowed in April from last month. As per trading economics, Supply Management’s Manufacturing PMI in the U.S. dropped to 54.8 in April 2017 from 57.2 in March and fell shy of market expectations of 56.5. This marked the lowest reading since December 2016, hurt by slower growth in new orders and employment (read: ETF Winners & Losers of April 2017).

Of the 18 manufacturing industries, 16 recorded an increase in April with Electrical Equipment, Appliances & Components; Printing & Related Support Activities, Furniture & Related Products, Textile Mills and Machinery deserving special mention.

As per an article published on MarketWatch, “economists said a pullback in the index was likely after excessively high readings earlier in 2017 that were not supported by increases in U.S. production.” Also, the article went on to explain that business sentiments are still healthy as indicated by a survey of executives.

Q1 GDP Weak, But Q2 on the On the Recovery Path?

The U.S. economy grew at the weakest clip in three years hurt by struggling auto sales and muted home-heating bills, which set aside an uptick in investments by housing and oil drilling, as per Bloomberg.

GDP advanced at a 0.7% annualized rate in Q1 of 2017, coming in lower than the estimated 1% rise and the prior quarter’s gain of 2.1%. Consumer spending delivered the weakest show since 2009.

However, the Atlanta Fed upped its projected rate of second-quarter economic growth. It now expects a 4.3% expansion rate for Q2. If Atlanta Fed is correct about the forecast, it would mark the highest growth rate “since the 5% gain seen in the third quarter of 2014”, as per an article published on MarketWatch.

ETF Impact

This hints at some economic strength in the coming days. Investors intending to prepare themselves ahead of time may tap the below-mentioned ETFs. Investors should also not forget that the ongoing earnings season is shaping up well, calling for some gains to be realized in the coming days.

iShares Edge MSCI USA Momentum Factor MTUM

If the market rides on high hopes and the Fed remains patient on the policy tightening issue, this fund may outperform ahead. This ETF seeks to track the performance of large- and mid-cap U.S. stocks exhibiting relatively higher momentum characteristics. The fund charges 15 bps in fees (read: High Beta and Momentum ETFs to Buy on High Hopes).

PowerShares Russell Midcap Pure Growth Portfolio ETF PXMG

As the economy improves, smaller-sized companies tend to perform better as these are more focused on the domestic economy. However, since several international economies are also performing well, we choose a mid-cap ETF (which offers the best of the both worlds – large and small caps) with growth characteristics.

iShares Core S&P Total U.S. Stock Market ETF ITOT

A look at the overall U.S. stock market also seems intriguing at the current level.  The fund looks to track the broad equity market, including large, mid, small, and micro-cap stocks. The fund charges 3 bps in fees.

Ark Innovation ETF ARKK

With business activity still reassuring, a look at this ETF makes sense. As per the issuer, ARKK provides thematic exposure to innovation across all sectors of innovation.” The product charges 75 bps in fees (read: Twitter Soars on Q1 Results: Sign in to Social Media ETF).

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ISHRS-MSCI US M (MTUM): ETF Research Reports
 
ISHARS-1500 IDX (ITOT): ETF Research Reports
 
PWRSH-F P MD GR (PXMG): ETF Research Reports
 
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