SCHD ETF has pulled back: is it safe to buy the dip now?

The Schwab US Dividend Equity ETF (SCHD) has slumped to its lowest level since February 4 this year. SCHD has dropped by 4.40% from its highest point this year, and this trend may continue falling before rebounding.

SCHD ETF stock has dropped as American shares dump 

The Schwab US Dividend Equity ETF has suffered a big drop in the past few weeks, mirroring the performance of other American stock indices.

Most of its constituents have dropped after the start of the US-Iran war. However, unlike the S&P 500 and Nasdaq 100 indices, it is better positioned to handle the ongoing crisis.

That's because the energy segment is the biggest part of the fund, with a 20% share. This includes companies like ConocoPhillips, Chevron, and EOG Resources. Most of these stocks have done well as crude oil and natural gas prices have soared.

Other large companies in the index are not highly affected by the ongoing Iran war. The health care segment is another major one, accounting for about 16.3%. This includes companies like Bristol Myers Squibb, Merck, Amgen, and AbbVie. Like in the energy segment, the health care one is not highly exposed to the ongoing war.

The same is happening in other large companies like Texas Instruments, Verizon, Altria, and PepsiCo. 

Meanwhile, the fund has a minimal presence in the technology industry, which has come under pressure as analysts start to question the potential for an AI bubble. 

Hawkish Federal Reserve 

The SCHD ETF has retreated amid the ongoing fear that the Federal Reserve will embrace a more hawkish tone amid the ongoing Iran war. In a statement on Wednesday, the bank decided to leave the interest rate unchanged between 3.50% and 3.75%.

Officials signaled that they were concerned about the rising inflation data as energy, transportation, and fertilizer costs jumped. As a result, analysts believe that the bank will deliver at least two interest rate hikes this year. 

Historically, the SCHD ETF tends to beat the broader market whenever the Federal Reserve is hiking interest rates because it is made up of value stocks.

Data shows that the fund is relatively undervalued compared with the broader market. The SCHD has a price-to-earnings (PE) ratio of 19, lower than the S&P 500 Index average of 23. Its price-to-cash-flow of 10 is also lower than that of the broader market.

SCHD ETF stock technical analysis

Schwab US Dividend Equity ETF chart | Source: TradingView

The daily chart shows that the Schwab US Dividend Equity ETF has slumped in the past few days. It has dropped from a record high of $31.95 to the current $30.60. 

The ongoing retreat has brought the Relative Strength Index (RSI) from the overbought level of 86 to the current 40. Also, the Stochastic Oscillator has moved to the oversold level.

Therefore, the stock will likely remain under pressure for a while and then stage a strong comeback. If this happens, it may drop to the 23.6% retracement level at $29.85 and then resume the uptrend.