SCHD ETF is beating S&P 500 and Nasdaq 100: does it have more upside?

The Schwab US Dividend Equity (SCHD) ETF rocketed to a record high last week, meeting our previous forecasts. It ended the week at $32.83, bringing its year-to-date gains to nearly 20%. In contrast, the S&P 500 and Nasdaq 100 indices have jumped by 9% and 17% this year. This trend may continue now that the SCHD stock has formed a bullish chart pattern and has become a good AI hedge.

SCHD stock has formed a bullish chart pattern

The daily chart reveals that the SCHD ETF stock price has surged in the last five consecutive days and is now sitting at its all-time high. This surge may continue as the fund has formed a textbook cup-and-handle pattern, a common continuation sign in technical analysis. 

In this case, the upper side of the cup was at $32, while its lower side was at $30.21, giving it a depth of $1.72. The profit target in this pattern is estimated by adding this height to the cup’s upper side. In this case, adding $1.72 to $31.93 gives the profit target at $33.65.

Other technicals suggest that the ETF has more upside. It has remained above all moving averages and the Supertrend indicator. Also, the Relative Strength Index (RSI) and the Average Directional Index (RSI) have continued soaring.

Therefore, the path of least resistance for the SCHD stock is bullish. This view will become invalid if it drops below the key support level at $31.93. 

Top catalysts for the Schwab US Dividend Equity ETF

There are several potential catalysts for the SCHD stock price this year. The most important one is that it has become one of the top hedges against the ongoing AI boom since most of its constituent companies are in the traditional industries like energy, financials, and consumer staples. 

With so many AI stocks being in a bull market, chances are that there will be a rotation from growth to value over time. The SCHD ETF would be a good beneficiary to this as we experienced in the first quarter when it surged to a record high as AI stocks slipped.

The SCHD ETF may also benefit from the broader stock market rally that is being helped by strong earnings. Data shows that the first quarter earnings growth was 28.6%, the highest level since the fourth quarter of 2021. Most companies, including SCHD constituents, published strong numbers.

Additionally, while SCHD has few AI companies, chances are that many of its constituents will leverage the technology to save costs and boost profitability over time. For example, some companies have announced AI job cuts this year, with many of them noting that their workers had become redundant. 

The SCHD ETF is also fairly undervalued compared to the other top funds. It has a price-to-earnings ratio of 18, much lower than the Nasdaq 100’s 35 and the S&P 500 Index’s 22. 

To be clear: while the Schwab US Dividend Equity ETF is known for its dividends and growth, the reality is that it pays little payouts to investors. It has a dividend yield of just 3%, which is much lower than what US government bonds are paying today. Its main benefit is that the stock continues to grow this year.