The Schwab US Small-Cap ETF (SCHA) stock has been in a consolidation phase since July. It was trading at $40 on Friday, down by more than 25% from the highest level this year. The fund remains ~11% above the lowest level in 2022.

The Schwab US Small-Cap ETF is a fund that tracks the Dow Jones US Small Cap Total Stock Market Index. It tracks 1,751 companies with a total expense ratio of 0.04% and over $13.3 billion. The fund belongs to a family of funds that includes SCHD, the popular exchange-traded fund.

The SCHA ETF is a highly diversified fund that tracks small and mid-cap companies. 19% of its portfolio is made up of industrials while 15.4%, 13.86%, 13.47%, and 13% is in financials, health care, IT., and consumer discretionary. 

The biggest companies in the SCHA ETF are Nutanix, US Steel, Mattel, Siteone Landscape Supply, Exelixis, and Dropbox. Unlike most funds, the biggest constituent has a 0.28% stake in the fund. 

The Schwab US Small-Cap ETF will likely remain under pressure as concerns about the economy continue. For example, the 30-year Treasury yield rose to 5% this week and closed at 4.96%. The 10-year yield rose to 4.8% while the yield curve inversion stands at -32.1. 

The bond market points to more rate hikes in the coming months now that the US non-farm payrolls (NFP) are strong. The data showed that the economy added over 320k jobs in September while inflation is still high.

The challenge for small-cap companies, as I wrote here, is that they are less profitable than their large-cap constituents. Recent data shows that small-cap companies are being hurt by rising rates since they have limited cash in their balances and lower profits.

The weekly chart shows that the SCHF ETF has been in a tight range in the past few months. It has formed a rising wedge pattern, which is usually a bearish sign. The stock has now moved below the lower side of the wedge.

The SCHF stock has moved below the 50-day and 25-day weekly moving averages while the Relative Strength Index (RSI) moved below the neutral point. Therefore, there is a likelihood that the fund will have a bearish breakout as sellers target the key support at $36.51, the lowest level in October 2022.

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