The SCHD and JEPI stocks have pulled back in the past few weeks as the US-Iran war has escalated. The Schwab US Dividend Equity ETF slipped to $30.6, down by over 3.17% from its highest point this year, while the JPMorgan Equity Premium Income ETF dropped to $56 from the year-to-date high of $59.58.
Here are the top reasons why these funds will rebound in the near term.
SCHD and JEPI ETFs to rebound as US-Iran war ends
One reason why the JEPI, SCHD, and the broader stock market will rebound this year is that there are signs that the ongoing US-Iran war will end in the coming weeks.
In a statement on Tuesday, President Donald Trump said that he expects the war to last for two to three weeks, which falls in April.
The United States does not have all the cards here, with Iran having a role to play in determining when the war will end.
However, signs that Trump wants to exit may lead to negotiations between the two sides, which will lead to a rebound of the stock market.
One major catalyst for this is the fact that the Fear and Greed Index has dropped to the extreme fear zone of 16. In most cases, the stock market tends to rebound when there is intense fear in the market.
This view is based on the popular Warren Buffett quote, where he recommends buying when market participants are fearful and sell when most of them are greedy.
Fear and Greed Index has plunged | Source: CNN Money
History shows that the US stock market often does well after experiencing a major shock. A good example of this is what happened in April last year when it crashed after Donald Trump announced his “reciprocal tariffs.”
Stocks also plunged in March 2020 when COVID-19 was declared a global pandemic. They then rebounded substantially and moved to a record high after that.
US corporate earnings set to boom
The other major catalyst for JEPI, SCHD, and other American equity ETFs is that the earnings season will start mid-month with companies like Citigroup, JPMorgan, Morgan Stanley, and BlackRock releasing their first quarter results.
FactSet data shows that Wall Street analysts are optimistic that corporate earnings will continue to do well in the first quarter.
The average estimate among analysts is 13%. In most cases, the real revenue growth is usually much higher than the average estimate. As such, there is a possibility that the S&P 500 Index earnings estimate will be over 17%.
Additionally, analysts expect that the S&P 500 Index will jump by 29% in the next 12 months, with the technology sector leading the gains.
American companies are undervalued
The other bullish case for these ETFs is that American companies have become bargains after the recent retreats.
The FactSet report referenced above shows that the average forward price-to-earnings ratio for the S&P 500 Index is 19.o, which is equal to the five-year average.
Similarly, the SCHD ETF has a price-to-earnings ratio of 18, a sign that it is also a bargain that investors will pile into once the ongoing war ends.
Technical analysis suggests that JEPI and SCHD ETFs will rebound
JEPI stock chart | Source: TradingView
The daily timeframe chart shows that the JEPI stock price has retreated in the past few weeks, moving from a high of $59.56 in February to a low of $55.
A closer look shows it has formed a falling wedge pattern, a popular reversal sign in technical analysis.
The stock also formed a harami candlestick pattern, meaning that the stock will stage a strong rebound, potentially to the year-to-date high of $60 in the next few weeks.
SCHD stock technical analysis
SCHD ETF stock chart | Source: TradingView
The daily chart shows that the SCHD stock price has stabilized in the past few days. A closer look shows that it has formed an inverted head-and-shoulders pattern, which is a common bullish reversal sign in technical analysis.
It also remains above the 50-day and 100-day Exponential Moving Averages. Therefore, the stock will likely keep rising in the near term, potentially to the key resistance level at $31.65.
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