LAST CHANCE TO SELL IN MAY AND GO AWAY / MACLEOD FINANCE

Last chance to sell in May and go away

The longest running market meme is to sell in May and go away. Will it be right to do so this time? Tomorrow (Friday) is your last chance…

ALASDAIR MACLEOD

As a young stockbroker, I found that business from late-May onwards into the summer was doubly frustrating. 

Investment managers from whom I hoped to get buy orders would be “out of office”. 

While I was at my desk or on the floor of the stockmarket, they would be at Lord’s for test match cricket, followed by Royal Ascot for the racing and socialising, Henly for the rowing regatta, and Wimbledon for tennis. 

Quite simply, the buyers were out of town and in their absence the market would wilt.

For these reasons, selling in May with a view to returning to the market later in the year made sense. 

So off I would go to Lords, Ascot, and Wimbledon as well.

This time, there are extra reasons to be cautious.

The first is that equities have become completely detached from the reality of what’s happening to bonds. 

In general terms, when bond yields rise, that’s bad for equities and when they fall that’s good for equities. 

This is because bonds set a return hurdle for equities to at least match and even exceed their yield returns, given that equities are higher risk with uncertainty.

If you chart an equity index, such as the S&P 500 and compare it with the long bond’s yield, the correlation should be consistently negative. 

In other words, a track to higher bond yields will lead to lower stock prices. 

By inverting the bond yield, the two series should track each other. 

This is demonstrated in the chart below:

The red (S&P) and blue (long bond yield inverted) should track each other, and since the financialisation of the US economy over 40 years ago, that negative correlation has done just that.

There have been a few aberrations, such as the dot-com bubble in 2000 (arrowed) when investor optimism was so extreme that any student of the South-Sea bubble, or tulipomania will have recognised the psychology. 

Following the 2008—2009 financial crisis, interest rates and therefore bond yields were continually suppressed by monetary policy making bonds expensive relative to equities, dragging them higher. 

This reached a peak in 2020 with zero interest and even negative interest rate policies.

When the long bond yield began to soar from 1% in 2020, investors in equities ignored the valuation damage completely. 

Equities relative to bonds are now more expensive than they have ever been, indicated by the double-headed arrow to the right of the chart. 

It is over three times as long as the double-headed arrow marking the dotcom bubble. 

It is a sure sign of a massive equity bubble, which will burst; and when it does the wealth destruction will make 1929—1932 look like a minor event in comparison. 

It has been driven by easy credit inflating stock values, as the FINRA chart below shows:

These are loans by brokers to their clients. 

It is essentially retail stock leverage, because hedge funds and other large investors go to the banks and wholesale markets directly. 

In December 2025, according to the Office for Financial Research hedge fund gross borrowing was estimated at $7.42 trillion split between repos, prime brokerage, and other secured:

While there might be some crossover with FINRA’s figures, they confirm that total credit puffing up equities is massive. 

Prime brokerage and repo funding have increased very sharply along with the equity market. 

For anyone making the connection, it will be clear what’s driving this bubble, and that with record amounts of credit fuelling it, when the bubble bursts the consequences will be a spectacular implosion of values.

So far, equity markets have ignored the threat from bond yields. 

But now, President Trump has upped the ante by starting an unwinnable war on Iran. 

And Iran is not just going to roll over and open Hormuz. 

The economic damage is very serious and will lead to a lethal combination of slump and price inflation. 

That is a certainty which will drive bond yields higher still. 

The chart below should jerk anyone out of investment complacency:

Whither equities when the long bond yield breaks above 5 ¼%? 

Then 6%, 7%, 10%...

The one thing this flag pattern tells us is that there is going to be an almighty bond crash as yields surge higher and all that credit fuelling equities is bound to be called in. 

When that happens, a bear market becomes self-feeding as banks liquidate stock held as collateral into a falling market.

Tomorrow (Friday) is the last chance to sell in May. 

It could be the best thing to do, liquidate everything and park the proceeds in real money, which is physical gold or silver because the currency is bound to be debased as the entire financial system enters crisis.

Then you should complete the sell-in-May adage and go away, preferably to Ascot and Wimbledon. 

There’s a test match at Lords (England plays New Zealand next week) if you are a Brit. 

Other choices are available to sports fans in other nationalities.