Here’s why the SCHD ETF stock is lagging the S&P 500, Nasdaq 100

The Schwab US Dividend Equity ETF (SCHD) has been left behind by the ongoing stock market bull run.

The SCHD ETF was trading at $31.65 on Wednesday, a few points below the all-time high.

It has jumped by 3.77%in the last 30 days, while the S&P 500 Index is up by 11% and is hovering at its all-time high.

SCHD ETF lagging because of the AI boom

The main reason why the blue-chip SCHD ETF continues to underperform the broader stock market is that it has little exposure to the ongoing AI industry.

Data on its website shows that the top companies in the fund are in the consumer staples, health care, energy, industrials, and financials segments.

The top names in the fund are Texas Instruments, Qualcomm, UnitedHealth, Chevron, Coca-Cola, ConocoPhillips, and PepsiCo. 

As we experienced earlier this year, the fund normally does well when the technology sector is lagging as this leads to a rotation from growth companies to value names.

On the other hand, most of the ongoing S&P 500 Index gains are being driven by the AI boom, which has become the anchor of the US economy.

As we experienced last year, memory chip companies are still the top gainers in the stock market this year as demand has remained at an elevated level.

The memory chip shortage has pushed prices higher, which is boosting their earnings.

Some of the top gainers in the stock market this year are top names like Sandisk, Western Digital, Micron, and Seagate Technology.

Sandisk has pumped by nearly 500% this year and is up by 4,045% in the last 12 months.

In addition to memory companies, the other top gainers are technology companies like Intel, Lumentum, Vertiv, Teradyne, ON Semiconductor, and Dell. 

The ongoing performance means that the SCHD ETF will likely continue to underperform the broader market as the AI spending boom gains steam.

The case for the Schwab US Dividend ETF 

Still, despite the ongoing lagging of the SCHD ETF, analysts believe that it is a good part of a balanced portfolio.

For one, the SCHD ETF is still up by 11.7% this year compared to the S&P 500 Index’s 7.7%.

That's because some top AI companies, especially NVIDIA, and those in the software industry, remained under pressure in the first part of the year.

Analysts believe that the SCHD ETF provides a hedge, especially when the AI boom slows, which is unlikely for now.

At the same time, the fund is a bit undervalued compares to the broader market.

It has a price-to-earnings ratio of 18.3, slightly lower than the S&P 500’s 22. 

Its price-to-free cash flow of 10.3 is also lower than that of the broader market. It also has a return on equity of 27%.

SCHD stock has strong technicals 

SCHD stock chart | Source: TradingView 

The daily timeframe chart shows that the SCHD ETF has some strong technicals, which may lead to a strong surge in the near term.

It remains above the 50-day and 100-day Exponential Moving Averages (EMA).

At the same time, it has formed a cup-and-handle pattern, which is a common bullish continuation sign.

It has already retested the upper side of the cup, confirming the break-and-retest pattern.

Therefore, the most likely scenario is where it pumps hard in the coming weeks, potentially hitting the key resistance level at $35.