The Tipping Point: How Leading Indicators Signal the Dawn of the Next Bull Market

The U.S. economy is balancing on a knife’s edge, but the data is clear: the signals are aligning for a cyclical trough—and investors who act now can capture the upside of the next bull market. Declining unemployment (in pace), rising Purchasing Managers’ Index (PMI) readings, and narrowing yield curve spreads are all converging to suggest that the worst of the contraction is behind us. This is the moment to pivot aggressively toward equities, cyclicals, and tech—sectors that will thrive as growth resumes.

Manufacturing and Services PMIs: The Leading Edge of Recovery

The April 2025 Manufacturing PMI rose to 50.7, marking the fourth consecutive month of expansion (albeit modest) after a contractionary dip in late 2024. This is a critical signal: while manufacturing output faces headwinds from trade tensions and tariffs, domestic demand is holding firm. Meanwhile, the global PMI composite for April stabilized at 50.8, the highest reading in six months, driven by emerging markets.

Even the services sector, which has been buffeted by inflationary pressures, is showing resilience. Though May’s PMI data is pending, April’s readings suggest a slowdown in the pace of deceleration—a subtle but vital shift. The services sector’s expansion, now at 51.5, is outpacing manufacturing and signaling that consumer demand remains intact.

The Yield Curve Reversal: A Narrowing Divergence Points to Less Recession Risk

The 10Y-2Y Treasury yield spread has narrowed to -0.47% in May 2025, a marked improvement from its -0.67% trough in early 2024. While an inverted yield curve typically precedes recessions, the narrowing gap suggests that bond markets are pricing in reduced downside risk.

This is a critical inflection point. Historically, the yield curve has inverted an average of 18 months before recessions, and the current spread’s stabilization implies the Fed’s gradual rate cuts are easing financial conditions. Investors should note: even an inverted curve does not signal immediate doom—it signals that the Fed’s policy is working to temper overheating, not that a downturn is imminent.

Unemployment: A Lagging Indicator, But Stabilization Ahead

While the U.S. unemployment rate rose to 4.2% in April 2025 (up from 4.0% in January), the trajectory is critical. Projections suggest it will peak at 4.3% by early 2026, with labor force participation stabilizing at 62.6%. This is a lagging indicator, meaning the trough in unemployment is a lagging signal—but its slowing pace of increase confirms that the economy is nearing bottom.

The Fed’s 2025 survey of professional forecasters emphasizes that job creation remains robust at 145,000 nonfarm payrolls monthly, even as GDP growth moderates. The labor market is resilient, and the slight rise in unemployment reflects structural adjustments (e.g., labor force re-entry) rather than a collapse in demand.

The Investment Playbook: Rotate to Growth-Driven Sectors Now

The convergence of these indicators creates a clear path for investors:

1. Equities: The S&P 500 has underperformed cyclicals and tech over the past year, but a recovery in earnings growth will fuel a rotation.
2. Cyclicals: Industrials (+12% in 2024) and consumer discretionary (+9%) are poised to outperform as PMIs stabilize.
3. Tech: Semiconductors and cloud infrastructure stocks, which thrived in 2023, are undervalued and will benefit from rising capital expenditures as growth resumes.

Why Act Now?

The May 2025 data releases will confirm these trends. The PMI flash report on May 22nd will likely show services sector resilience, while the June 6th unemployment report will clarify whether the jobless rate has peaked. Investors who wait for “confirmation” will miss the most powerful gains—the best returns come in the earliest stages of a bull market.

Conclusion

The leading indicators are whispering a clear message: the contraction is ending. PMIs are expanding, the yield curve is stabilizing, and unemployment is peaking. This is not a time for caution—it’s the moment to pivot aggressively toward equities, cyclicals, and tech. Those who act now will capture the full upside of the next bull market. The trough is here. The ascent begins now.

Act before the crowd. The next leg of growth is about to begin.