The Schwab US Dividend Equity ETF (SCHD) has pulled back sharply in the past few weeks as Donald Trump’s trade war continued, and after its recent reconstitution. After soaring to a high of $29.17 in November last year, the blue-chip dividend fund has dropped to $25.60, giving it over $65 billion in assets.
This article explores why the SCHD ETF has crashed, why it is a safer fund to buy, and why a death cross is a risk to consider.
Why the SCHD ETF has crashed lately
The blue-chip Schwab US Dividend Equity ETF has plunged in the past few weeks as concerns about trade and the technology sector continued.
It has moved into a correction after falling by over 12% from its highest level this year mostly because of the ongoing trade war.
Donald Trump has imposed a 10% baseline tariff on all goods brought to the country. Its Chinese tariffs stands at 145%, while those on automobiles, steel, and aluminium have soared to 25%.
Therefore, there are concerns that the US may sink into a recession. Polymarket traders have placed the odds of a severe downturn to over 65%. Analysts at companies like JPMorgan, Blackrock, and Citi have all boosted their recession odds for the year.
However, as we have written, the SCHD ETF will be less exposed to these tariffs because of its composition.
Financials account for the biggest part of the fund, accounting for a 18.73% share. Most of these financial services companies are domestic regional banks that do minimal business outside the country.
Therefore, these companies will not be directly affected by Trump’s tariffs. A key issue is where the economic downturn affects regional banks as it did two years ago when companies like Signature and Silicon Valley Bank collapsed.
Healthcare and consumer staples companies in the SCHD
The other top category in the SCHD ETF are in the healthcare sector, which accounts for about 16.6% of the fund. Healthcare companies are less exposed to tariffs because of how the sector works in the US.
Trump has said that he is considering placing tariffs on pharmaceuticals. The reality, however, is that consumers will continue using these products since most of them are paid using private and public-sector insurance.
The SCHD is also made up of many companies in the consumer staples industry. Firms in this segment do well in all market conditions because of their staples nature. For example, people will always use staple products like toothpaste and groceries regardless of the market conditions.
The top SCHD companies that the ongoing trade war may impact are in the energy sector because of the falling crude oil prices. As we predicted recently, there are chances that Brent and West Texas Intermediate (WTI) crude oil prices will sink to below $50 soon.
The biggest SCHD companies will not be impacted substantially by the tariffs. This includes top companies like Verizon, Coca-Cola, Lockheed Martin, Conocophilips, Altria Group, PepsiCo, and Home Depot.
SCHD ETF stock price analysis: death cross nears
The daily chart shows that the Schwab US Dividend Equity ETF peaked at $29.17 in December and then dived to a low of $23.90. It then bounced back to the current $25.50 as the tariff crisis faded.
The risk, however, is that the stock is about to form a death cross pattern, which happens when the 50-day and 200-day moving averages cross each other. Therefore, the stock will likely remain being volatile in the coming weeks. If the death cross forms, there is a risk that it will drop and retest the support at $23.90, down by 6.6% from the current level.
The bullish outlook will be confirmed if the stock rises above the 23.6% Fibonacci Retracement point at $27.25.
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