Key insights
- The article suggests SCHD may outperform if economic slowdown trends accelerate due to factors like a slowing jobs market and rising inflation. It highlights a preference for quality stocks, which benefits SCHD. However, tech rallies could cause underperformance. Overall, a mildly bullish outlook for SCHD relative to the broader market given potential economic headwinds.
The Schwab U.S. Dividend Equity ETF (SCHD 0.61%) has rebounded from an ugly 2023-2025 stretch to once again become one of the best-performing dividend ETFs in the marketplace. Its lack of tech exposure during the AI boom caused it to meaningfully underperform the S&P 500. But as the market rotated away from tech in 2026, the fund's more defensive, value-oriented strategy made a huge comeback.
In April, tech stocks soared again, leaving the fund a laggard once more. The remainder of 2026 will likely feature a slate of catalysts, such as the Iran war, inflation, and corporate earnings, that could swing market leadership back and forth several times before all is said and done.
Does that mean now is the time to buy the Schwab U.S. Dividend Equity ETF, or not?
Even though U.S. stocks are continuing to set new all-time highs, there are cracks appearing under the surface. The jobs market has slowed to a crawl over the past year, a sign that companies are dialing back spending and growth. Inflation shot much higher in March due to the Iran war. Rising prices tend to be an economic growth killer and likely prevent the Fed from lowering rates to help the economy.
If those economic slowdown trends start to accelerate later this year, stocks could be vulnerable to another correction. In that scenario, more conservative equity funds could outperform the S&P 500, as they did in 2022.
One trend we've continued to see throughout 2026, even when tech was rallying, was a preference for quality stocks. Whether it's the outperformance of dividend ETFs and funds, such as the Invesco S&P 500 Quality ETF, which has beaten the S&P 500 by several percentage points, investors are favoring financially healthy companies over pure speculative ones.
That's a good sign for the Schwab U.S. Dividend Equity ETF.