The Schwab US Dividend Equity ETF (SCHD) rally has stalled this month amid the ongoing pullback in the stock market as the geopolitical crisis in the Middle East continued.
SCHD stock dropped to $30, down by about 3% below the year-to-date high of $32.
SCHD ETF to react to the ongoing war in Iran
The first main catalyst for the SCHD ETF is the ongoing war in Iran and its fallout in the region.
This war has driven global stocks lower, with the Hang Seng and Nifty 50 indices falling by over 2% and 7%, respectively.
It also pushed crude oil prices higher, with Brent and the West Texas Intermediate (WTI) crossing the important resistance level at $100.
Natural gas prices have also jumped by double digits this year.
On the positive side, the SCHD ETF is made up of companies that will likely benefit from the ongoing war.
For example, Lockheed Martin, its biggest constituent, will benefit from the ongoing war as countries, including the United States, boost their defence spending.
More orders will likely come from countries in the Middle East, which have seen the vulnerability of their systems.
ConocoPhillips and Chevron, the other big names in the fund, are also to benefit from the ongoing crude oil and natural gas prices surge.
Energy companies account for about 20% of the fund.
The other big names in the fund, like Verizon, Bristol Myers Squibb, Altria, Coca-Cola, PepsiCo, and Texas Instruments will not be affected substantially by the ongoing war. Consumer staples and health care companies represent 18.50% and 16.20% of the fund.
The SCHD ETF is also benefiting from the ongoing rotation from growth to value as investors question the AI boom. Indeed, some of the top AI companies have slumped in the past few months.
NVIDIA, the biggest player in the world, has slumped into a technical correction after falling by 16% from its highest point last year.
Similarly, Palantir, another top AI company, has dropped into a bear market, falling by over 20% from its all-time high.
Other top players in the AI industry like Adobe, ServiceNow, and Amazon, have all slumped.
The SCHD ETF is also highly undervalued, with data showing that the price-to-earnings ratio stands at 18.6, much lower than the S&P 500 Index’s 23.
Its price-to-free cash flow of 10 is lower than other funds.
The other potential catalysts for the fund will be the upcoming US consumer inflation and personal consumption expenditure (PCE) report that comes out on Wednesday and Friday this week.
SCHD ETF share price technical analysis
The daily timeframe chart shows that the SCHD ETF stock price has pulled back from the year-to-date high of $32 to the current $30.
On the positive side, the fund has remained above the 50-day and 100-day Exponential Moving Averages (EMA).
It has also formed a bullish flag pattern, which is made up of a vertical line and a channel that resembles a hoisted flag.
Therefore, the most likely scenario is where the fund continues rising, with the initial target being the all-time high of $31.95.
A surge above that level will point to more gains, potentially to the psychological level at $35.
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