We're pulling out the 2011 market playbook to navigate the current debt-ceiling debacle

Published Tue, May 2 20233:42 PM EDTUpdated Tue, May 2 20234:03 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

The looming U.S. debt-ceiling crisis has ignited a new wave of uncertainty in the market this week, with all three major benchmarks under pressure Tuesday. But the debt standoff of 2011 offers some lessons for investors who, like us, are wiling to take the long view amid all the volatility. Wall Street's heightened focus on the debt ceiling comes after Treasury Secretary Janet Yellen on Monday warned the U.S. may exhaust its ability to meet its borrowing obligations as early as June 1 — at least a month in advance of predictions by many Wall Street economists. "I think that this gauntlet is too hard to get through without some real bumps," Jim Cramer said during Tuesday's "Morning Meeting." That gauntlet is more than just the potential for the U.S. to hit the debt ceiling in a month. In the very near term, investors are preparing for the Federal Reserve's latest interest-rate decision Wednesday – widely expected to be a quarter-percentage-point hike – and looking for clues about the central bank's future policy path. Investors also remain concerned about the health of the banking sector and the broader U.S. economy ahead of the Labor Department's closely-watched monthly jobs report on Friday. First-quarter earnings season, meanwhile, is in full swing , and thus far offering a rare bright spot for investors. But Club holding Apple (APPL) — one of the world's largest companies by market capitalization — reports on Thursday, with the results considered an important bellwether for the state of the economy. On the political front, House Speaker Kevin McCarthy, R-Calif., accepted an invitation to meet with President Joe Biden and other congressional leaders on May 9 in an effort to hash out a compromise on raising the debt ceiling, NBC News reported Tuesday. House Republicans have maintained that any increase to the debt limit should be tied to spending cuts, while Biden and the Democrats have argued that paying the country's bills should not be dictated by an agreement to reduce the country's deficit. With the political stalemate posing increased risks to the market and wider economy, we want to be both strategic and cautious in our investment choices — a view evidenced by our decision Tuesday to exit our position in Cisco Systems (CSCO). Selling our remaining Cisco shares bolsters the Club's cash position and enhances optionality, if the market puts stocks on sale amid worries about a U.S. default. That's the biggest lesson learned from the debt-ceiling crisis of 2011, which was characterized by similar political dynamics. The protracted fight ultimately ended in an agreement in early August of that year, but it was a choppy summertime ride for investors. The S & P 500 declined about 17% over a stretch beginning in late July to mid-August, during which Standard & Poor's took the unprecedented step of downgrading the United States' AAA credit rating . Nonetheless, stocks mounted a recovery in the fall of 2011, with the S & P 500 finishing the year essentially flat. And, ultimately, that crisis proved to be a great buying window for long-term investors who were willing to wait out the uncertainty. We expect the current crisis to ultimately yield a similar result — both in terms of a political resolution and a buying opportunity in the interim. In that vein, we'll look to put some of our fresh cash to work — following our sale of Cisco and some profit-taking Monday in Alphabet (GOOGL) and Eli Lilly (LLY) — in high-quality companies, if the market continues retreat on debt-ceiling jitters. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) 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 exterior of the U.S. Department of Treasury building is seen as they joined other government financial institutions to bail out Silicon Valley Bank's account holders after it collapsed on March 13, 2023 in Washington, DC.

Chip Somodevilla | Getty Images