We're exiting an underperforming tech stock to raise cash ahead of tricky time for the market

Published Tue, May 2 202310:01 AM EDTUpdated Tue, May 2 202310:09 AM EDT

We're exiting our position in Cisco Systems (CSCO), selling 500 shares at roughly $46.95 each. Following Tuesday's trade, Jim Cramer's Charitable Trust will no longer hold a position in CSCO. The Cisco Systems exit reflects our desire to be cautious ahead of what could be a tricky setup for the market over the next couple of weeks as it grapples with uncertainty related to the debt ceiling crisis, this week's Fed meeting, Friday's employment data and the continued stream of corporate earnings. Any one of these could be a potential landmine for stocks. So, after this year's solid run on Wall Street, it's prudent to reduce our risk to the downside by raising more cash and being ready to buy if the market gets hit. Examining those four potential headwinds facing stocks right now, our focus Tuesday morning is on the debt ceiling crisis. The market has largely ignored this issue thus far, but the conversation is about to heat up after Treasury Secretary Janet Yellen warned Monday that the United States could run out of cash as early as June 1. The setup going into the showdown — which is a real problem, even if it's completely man-made and avoidable — has some similarities to the summer of 2011. Back then, the Republicans had just taken control of the House of Representatives during the third year of the last Democratic president. Even though there was plenty of time to strike a deal, negotiations between Congress and the White House went nowhere. It went down to the wire, creating a lot of uncertainty in the market. .SPX mountain 2011-01-01 S & P 500 performance from 2011 to present In a two-week stretch in late July to early August, the stock market got crushed by the risk of the federal government defaulting on its debt obligations. The S & P 500 fell more than 17% in this period, which also saw Standard & Poor's downgrade the U.S. credit rating. However, we shouldn't attribute all of this decline to what was happening in the U.S. At the time, Europe was also having a horrific sovereign debt crisis. Still, if recent history is any lesson, it means it's time to get ready for a lot more headlines that say we could be headed for economic disaster. It could be hard for stocks to continue this year's rally when the news is that negative, which is why we want to have some extra cash on hand. However, if the market were to follow a similar pattern to 2011, the debt ceiling crisis then turned out to be an incredible buying opportunity. The stock market bounced back quickly once the problem was solved, and the S & P 500 finished roughly flat for the year despite the significant drawdown. As long-term investors, not traders, it's best to take up our cash position by a few percent to protect against potential downside, but then be ready buy. CSCO YTD mountain Cisco Systems YTD performance The stock we're selling Tuesday is Cisco Systems. Shares of this computer networking giant have struggled all year to shake off the narrative that the company is living off its backlog. Although Cisco trades at an undemanding valuation of about 12x forward earnings and has a solid 3.3% annual dividend yield and nice buyback, visibility into future growth remains low. we struggle to find enough reasons to see that scenario changing anytime soon unless there's a surprise pickup in the economy. This sale means we'll realize a loss of about 9% on our last remaining shares, but we'd rather pad our cash position by shedding names that aren't doing as well compared to winners. (Jim Cramer's Charitable Trust is long CSCO. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

The New York Stock Exchange in New York, March 28, 2023.

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