The Schwab US Dividend Equity ETF (SCHD) has been experiencing a remarkable surge in performance this year, significantly outperforming major indices such as the S&P 500 and Nasdaq 100. The ETF has increased by 8.50% and is currently trading near its all-time highs, while the S&P 500 has only gained around 1%. This article delves into the factors contributing to the ETF’s successful performance.
A pivotal element of the SCHD’s ascent is the rotation from technology stocks to value-oriented investments. A notable trend in the market has seen many tech stocks decline, with several entering correction or bear markets. For instance, NVIDIA, a leading player in the AI space, has fallen 10% from its peak early this year, while Microsoft’s shares have dropped 22%, now priced at $430. Other significant software firms, including Palantir, ServiceNow, and Salesforce, have similarly suffered losses.
Meanwhile, the SCHD ETF has benefited as investors shift their focus to value stocks that have lagged previously. This movement towards more traditional value sectors has been further propelled by rising energy prices. The energy component of SCHD, comprising about 20% of the fund, has fared well due to a surge in crude oil prices. Recently, Brent crude rose to $70 amid geopolitical tensions, particularly concerns regarding potential U.S. actions against Iran. The State Street Energy Select Sector ETF (XLE) has witnessed a significant increase, climbing 40% from its April lows to reach new heights of $51.
Looking ahead, the SCHD ETF’s performance may be influenced by key corporate earnings reports expected from numerous prominent companies, including Palantir, Walt Disney, AMD, and others. Analysts are optimistic that these upcoming reports will reflect solid performance in the fourth quarter, which could further bolster investor confidence. Additionally, data related to U.S. non-farm payrolls and any developments regarding Kevin Warsh’s nomination for Federal Reserve Chair could also impact market dynamics.
Technical indicators paint a promising picture for the SCHD ETF, which has seen a continuous upward trend since hitting a low of $23.20 in April, now priced at $29.82. The ETF has consistently remained above its 50-day and 100-day Exponential Moving Averages, and supportive indicators such as the Supertrend and Ichimoku cloud further affirm a bullish outlook. The Average Directional Index (ADX), currently at 43, indicates strong momentum—a significant increase from a low of 9.68 a year ago. Market analysts project the ETF could continue to rise, targeting a key resistance level at $35, although a drop below the support level of $28 would necessitate reevaluation of this positive trend.
The favorable movement of the SCHD ETF marks a shift in investor strategy, emphasizing value investments amid fluctuating technology stock performance. This adaptability may serve well for investors navigating the current market complexities.