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The month that was:
In the past month, the Nasdaq went up by about 6%, while the S&P 500 went up by only 0.3% and the Dow went down by about 3.5%. That is a huge difference between the three indexes. The main reason is artificial intelligence, or AI. On May 24th, Nvidia, which makes the chips that are used to train AI programs like ChatGPT, reported results and a forecast that were much better than expected. On May 30th, Nvidia became the newest company to be worth more than $1 trillion. Other chip companies like AMD and Broadcom also went up by about 30% in May. Since most of these companies are in the Nasdaq, the Nasdaq went up a lot, while many companies outside of tech went down. The Dow does not include Nvidia, which is a big reason why it did so much worse than the other indexes.
In my last newsletter, I explained how First Republic Bank was seized and sold to JPMorgan Chase. A few days later, on May 3rd, the Fed raised interest rates by another quarter point, to between 5% and 5.25%. This was the tenth rate increase in a row.
The other big story of the month was the debt ceiling. In a previous newsletter, I explained that the government borrows money from investors by selling Treasury notes. The government needs to borrow because it spends more money than it collects in taxes. Congress puts a limit on the total amount of money the government is allowed to borrow, and this limit is called the debt ceiling. This year, the government reached the limit of $31.4 trillion.
If the debt ceiling is not raised, the government cannot borrow any more money, and it may not be able to pay its bills. It would be like a person who suddenly can't pay their credit card bill, except much bigger. Treasury notes are considered the safest investment in the world, so if the government could not pay back its loans, it could cause a panic in the entire financial system. For most of May, Democrats and Republicans argued about a deal, and the stock market was nervous. At the end of the month, the President and the Speaker of the House finally reached an agreement, and it passed Congress in the first days of June. The debt ceiling has been raised many times before, but every time it gets close, it is a reminder of why it is important to own high quality companies that can survive any kind of panic.
Sells -
Sold 20 TWLO at $46.79
Twilio makes software that lets companies send text messages and make phone calls through their apps. This month, Twilio gave a forecast for the next quarter that was much lower than Wall Street expected, and the stock went down about 17% in one day. Twilio's growth is slowing down, and it is still not consistently profitable. As I have explained in my previous newsletters, I prefer companies with high and consistent profits that can grow their dividends. Twilio does not pay a dividend, so I sold my shares and used the money to buy dividend growers.
Sold 6 TEAM at $143.43
Atlassian makes software like Jira and Trello that teams use to organize their work. Atlassian has good products, but like Twilio, it is not yet consistently profitable and does not pay a dividend. When interest rates go up, the companies that get punished the most are the ones that don't make profits yet. I sold my shares to move into more profitable companies.
Buys -
Bought 4 SCL at $89.11
Bought 1 SCL at $90.92
Stepan makes chemicals that are used in everyday products like soap, shampoo, and laundry detergent. People keep buying these products even when the economy is bad. Stepan is a "Dividend King," which means it has raised its dividend for more than 50 years in a row! It may be a boring company, but boring companies with steady profits are exactly what I want to own when the market is nervous.
Bought 4 HD at $288.17
Home Depot is the largest home improvement store in the US. The day after I bought my shares, Home Depot lowered its forecast for the year, because people are spending less money on home projects like new patio furniture and kitchens. In the short term, the stock may underperform. But Home Depot is a very well managed company with high profits and a growing dividend, so I plan to hold it for the long term.
Bought 3 LHX at $186.90
L3Harris is a defense company that makes radios, communication equipment, and space technology for the military. Governments keep spending money on defense even during recessions, so L3Harris has steady business. It also has a good, growing dividend.
Thanks for reading my newsletter!