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US Q1 GDP Growth Trumps Expectations: ETF Areas to Win

Sanghamitra Saha
The U.S. economic growth in the first quarter breezed past expectations and marked the best first-quarter growth in four years. These ETF areas should gain from this momentum.

The U.S. economy grew an annualized 3.2% in the first quarter of 2019, breezing past expectations of 2%, following a 2.2% uptick in the previous three-month period. The expansion marked the best first-quarter growth in four years.

“The upside beat was helped by net trade (exports jumped while imports contracted sharply) and inventories which combined contributed almost 170 bps of the rise,” per Peter Boockvar, chief investment officer at Bleakley Advisory Group, as quoted on CNBC.com. Notably, imports saw the steepest drop (down 3.7%) since the fourth quarter of 2012.

However, consumer spending, which accounts for more than two-thirds of U.S. GDP, “was up just 1.2%, two tenths more than expected as an increase in spending on services and nondurable goods offset a decline in spending on durable goods.”

Though there are pockets of weakness, the U.S. economy is better-positioned than most developed economies. The labor market is steady as well. Against this backdrop, we highlight a few ETF areas that could fetch investors some solid returns.

Small-Cap ETFs

State and local spending rose 3.9%, marking the maximum rise since the first quarter of 2016, reversing a 1.3% decline in the fourth quarter of 2018. Since small-cap stocks benefit greatly from an uptick in the domestic economy, related ETFs likeiShares Russell 2000 ETF IWM should surge ahead (read: Small-Caps Beat S&P 500 in Q1: 5 ETF Winners).

Growth ETFs

A pickup in broad-based economic growth should bode well for the growth stocks across all spectrums. This makes sense to consider the fund Legg Clearbridge All Cap Growth ETF CACG.

Consumer ETFs

Though consumer spending slowed materially in the first quarter from 2.5% growth seen in the fourth quarter of 2018, the slowdown was due to factors including delayed tax refund payouts as a result of the government shutdown at the start of the year, according to PIMCO. PIMCO also expects consumer demand to “likely rebound” in the second quarter. If this happens, Consumer Discretionary Select Sector SPDR ETF XLY should be in a beneficial position.

Corporate Bonds

The stock market will likely cheer upbeat U.S. economic momentum. Since high-yield corporate bonds often behave like equities, funds like iShares iBoxx $ Investment Grade Corp Bond ETF (LQD) should gain in the days ahead.  Moreover, U.S. treasury yields may move higher in the coming days due to the strengthening of the U.S. economy.  In such a situation, a corporate bond ETF that offers benchmark-beating yields could help meet investors’ demand.  Notably, the fund LQD yields about 3.53% annually (read: Best ETF Strategies for Your Retirement Portfolio).

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iShares Russell 2000 ETF (IWM): ETF Research Reports
Consumer Discretionary Select Sector SPDR Fund (XLY): ETF Research Reports
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD): ETF Research Reports
ClearBridge All Cap Growth ETF (CACG): ETF Research Reports
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