American economy has been on a solid growth path. This is especially true as U.S. GDP growth expanded 4.1% annually in the second quarter, representing the fastest pace of growth in nearly four years. The number is almost double the revised Q1 growth rate of 2.2%. With this, GDP expanded 3.1% for the first half of the year.

The growth was driven by strong consumer spending, surge in exports business, increase in business investments, and higher government spending. The news came as a win for President Donald Trump, who had promised to raise GDP growth to 4% during the campaign through his pro-growth policies.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, climbed 4% in the second quarter after a modest 0.5% gain in the first. Exports jumped 13.3%, the fastest rate since the fourth quarter of 2013 as farmers rushed shipments of soybeans to China ahead of retaliatory tariffs that took effect in early July. Meanwhile, business investments grew 7.3% and government spending rose 2.1% boosted by a budget deal at the start of the year that added billions to defense and domestic spending. Housing nevertheless continued to struggle, declining 1.1% in the second quarter after an even sharper 3.4% decline in the first quarter.
 
Acceleration in Q2 growth bolstered the case for Fed to raise interest rates two more times this year. The central bank so far has made two lift offs – one in March and another in June (read: Fed Turns Hawkish: ETF Areas to Win).  

The amazing Q2 growth is likely to slow down in the second half of the year due to trade disputes and tariffs. Boost in exports is expected to reverse with the imposition of the tariffs. Additionally, higher import duties will increase the price of the goods, thereby cutting on both consumer and business spending. An easy money policy era is also gradually coming to an end. The impact of these events has taken a toll on consumer confidence. The latest survey shows that consumer sentiment, as measured by the University of Michigan, fell in July, dampened by rising fears related to repercussions of escalating tariffs.

However, the economy is on track to hit the 3% annual growth, thanks to historic tax cuts, infrastructure investment, higher government spending, deregulation, rising wages and record unemployment. Trump also said “We're on track to hit the highest annual growth rate in over 13 years."

While most of the ETFs will likely benefit on the astounding Q2 GDP numbers, we have highlighted five funds with a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy) and expected to outperform in the days ahead.

iShares Core S&P U.S. Growth ETF (IUSG Quick QuoteIUSG - Free Report)

Growth stocks outperform during a trending market (a market characterized by a prolonged uptrend). These refer to high-quality stocks that are likely to witness revenue and earnings increase at a faster rate than the industry average. As such, these stocks harness their momentum in earnings to create a positive bias in the market, resulting in rocketing share prices. IUSG having a Zacks ETF Rank #1 seems a good bet. It tracks the S&P 900 Growth Index and has amassed $4.9 billion in its asset base. It trades in a solid volume of 467,000 shares a day on average and is a low cost choice, charging just 4 bps in expense ratio (read: Large-Cap Growth ETF Hits New 52-Week High).

Vanguard Small-Cap Growth ETF (VBK Quick QuoteVBK - Free Report)

Small-cap stocks generally lead the way higher on improving American economic health as these are closely tied to the U.S. economy and generate most of their revenues from the domestic market, VBK, which tracks the tracks the CRSP US Small Cap Growth Index, appears to be an excellent choice. The product has amassed $8.5 billion in its asset base while trading in solid volume of around 151,000 shares. VBK charges 7 bps in fees per year and has a Zacks ETF Rank #1 (read: 6 Small-Cap ETFs That Have Surged to #1 Rank in Summer).  

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

Increased spending 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 $14 billion and average daily volume of about 6.1 million shares. It charges 13 bps in fees per year and has a Zacks ETF Rank #2 (read: How GICS Changes Will Impact Hottest Stocks and ETFs).

First Trust Industrials/Producer Durables AlphaDEX Fund (FXR Quick QuoteFXR - Free Report)

A rise in business spending will fuel growth in the industrial sector and thus FXR looks intriguing. This fund uses the AlphaDEX methodology to select stocks from the Russell 1000 Index and ranks them on both growth and value factors. It has AUM of nearly $1.6 billion and sees a good trading volume of about 151,000 shares a day. It charges 63 bps in fees per year and has a Zacks ETF Rank #2.

iShares U.S. Aerospace & Defense ETF (ITA Quick QuoteITA - Free Report)

Increase in government and defense spending will provide a boost to the defense stocks and its related ETFs. ITA follows the Dow Jones U.S. Select Aerospace & Defense Index. It has AUM of nearly $5.7 billion while charging 44 bps in fees a year. Volume is good at around 335,000 shares. The ETF has a Zacks ETF Rank #2.

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