The Schwab US Dividend Equity ETF (SCHD) has bounced back in the past few weeks, mirroring the performance of US indices like the S&P 500 and Nasdaq 100. The SCHD ETF has jumped by almost 10% from its lowest level this year, and is hovering at its highest swing since April 4.
This article explains the top catalysts for the popular dividend fund and why it may retreat in the near term.
Federal Reserve interest rate decision
The first most important catalyst for the SCHD ETF will come from Washington, where Fed officials will start their meeting on Tuesday and deliver their decision on Wednesday.
Economists expect the central bank to maintain a relatively neutral stand in this meeting as they leave interest rates unchanged at 4.50%. It will be the fourth meeting in which they will leave rates unchanged.
The bank’s officials are mostly concerned about inflation, which they expect will continue rising because of Donald Trump’s tariffs on imported goods from around the world.
However, the recent economic data from the US means that the bank may have a dovish tilt in this meeting. Such a tilt may see the bank signal of a rate cut in the June meeting.
Wall Street analysts believe that the bank will start cutting rates if next week’s inflation data shows that prices are moving downwards. A dovish tilt may help to boost the SCHD ETF’s performance.
Trade deal hopes
The other top catalyst for the SCHD ETF is the rising hopes of a trade deal between the United States and other countries, especially China.
As we wrote earlier on, the Taiwan dollar went vertical as these hopes rose following Donald Trump’s statement that he would be open to reaching a deal with countries as soon as this week.
As we have written before, Trump’s tariffs will have a muted impact on some of the biggest SCHD constituents because most of their industries. The top firms in the fund are ConocoPhillips, Coca-Cola, Verizon, Lockheed Martin, Altria Group, Home Depot, and Abbvie.
Firms like Verizon, Altria, and Coca-Cola are often not affected by tariffs because of how their businesses operate. For example, Coca-Cola operates bottling plants locally, while Verizon makes money from selling services.
Still, hopes of a trade deal will benefit the SCHD ETF by boosting the overall market sentiment. It will also help some of the companies that are directly affected by these tariffs like Ford, General Mills, Snap On, Best Buy, and Buckle.
Corporate earnings
The other potential catalyst for the SCHD ETF will be the upcoming corporate earnings from American companies.
While most companies in the S&P 500 Index have published their earnings, many more remain. This includes companies that are in the SCHD ETF.
Some of the top companies that may impact the US stock market this week are Walt Disney, ConocoPhillips, Monster Beverage, Devon Energy, Cheniere Energy, AMD, Unilever, Zoetis, Fidelity National, and Electronic Arts.
Most companies that have released their results so far have published strong numbers, with the blended earnings growth being 12%, higher than expected.
However, analysts understand that these numbers are transitory since they did not include most of Trump’s tariffs.
SCHD ETF stock has formed a risky pattern
The daily chart shows that the SCHD ETF bounced back from a low of $23.85 to a high of $26, its highest level since April 4 this year.
It has remained below the 50-day moving average, meaning that the recovery is still not fully confirmed.
The stock has formed a rising wedge pattern, which is comprised of two ascending and converging trendlines. These two lines are now nearing their convergence, which could be a sign that it will have a bearish breakdown soon.
If this happens, it will likely drop to the next psychological level at $25, down by 4% from the current level.
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