Long

SCHD Getting Back on Track?

Updated

Easily the best cash-flow dividend ETF, seems to be in the process of getting back on its long-term track following the easy money excesses of the Fed's post-pandemic policies.

This forecast is a bullish scenario, imo, that might even accommodate a modest recession. The large-cap value stocks in SCHD tend to hold up well during market volatility.

Note

SCHD literally bounced off the upper bound I posited like it was real. Look how well it has respected that upper bound throughout the downward trend. Right before it bounced, I thought it's just going to fly through it. Then suddenly sentiments turned. My intuition is SCHD's post-Covid upward breakout from its long-term channel was fueled by Powell's inflation of the money supply (M2SL), and thus it ought to return to that channel when//if it is reduced.

Note

Here we can see how well the money-supply thesis for SCHD tracks (yellow trend is the US money supply). However, the forecast of this idea is contingent on M2SL actually continuing to decrease, but as we can see, recently it started to increase, likely contributing to this year's rally. If it does not continue to decrease, then this idea my not pan out.

Note

While the SCHD trend has cracked through the channel ceiling a bit, I doubt this will last long and it's already showing signs of topping. Imo, SCHD (large-cap value) is a very stable / coherent barometer of underlying economic conditions, and as long as the money supply (M2SL) keeps reverting to normal, after its Covid explosion, I'm confident this channels-transition model will hold. But I'm no market guru, just doing my best to figure things out.

Note

This metric "Monetary Base, Total" in the gold trend shows the total monetary base. Per Investopedia, the monetary base is "the total amount of a currency in general circulation or in the commercial bank deposits." This implies the Fed is not doing QT as promised, instead it's back to QE. That certainly explains why SCHD has broken out of the channel, which assumed QT would continue. Above I stated that I trust this channel provided the Fed continues with QT. Alas, experience proves time and again that it's foolish to trust the Fed.

Note

Here's the "Fed Net Liquidity Indicator" alongside SCHD. It provides another measure of the Fed failing to keep its promise of quantitative tightening (QT) and instead returning to QE, which boosts equity prices more often than not. As I noted above, this idea is contingent on the Fed adhering to QT. Alas, the Fed refuses to do so.

There is also reason to expect the Fed will increase QE even more, see: ft.com/content/4d3790e0-cf12-47f9-a129-b44f4ed70e67 If so, this idea is probably toast.

iGoddard

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