Leading Economic Indicators and Cycle Timing: Why This Rally May Be on Borrowed Time
- May 1
- 6 min read
Wall Street’s attention is glued to earnings headlines and inflation prints, but beneath the surface, a different set of signals is starting to emerge. While stock prices have rebounded and intermediate cycles still show near-term upside potential, a growing number of leading economic indicators are warning that this rally may be running out of time.
At Market Turning Points, we don’t chase narratives or trade based on lagging data. Instead, we use cycle timing, price channel structure, and real-time market internals to determine when risk is rising and trend shifts are likely. In this post, we’ll explore how leading indicators — including port traffic, manufacturing surveys, and inventory behavior — are flashing red, and why that could mark a turning point in the market’s current trajectory.
Earnings Look Strong — But They’re Backward-Looking
Let’s start with what’s holding this rally together: corporate earnings. As of this week, roughly 73% of S&P 500 companies have beaten expectations for Q1 — slightly below the 10-year average but still a solid performance. Year-over-year growth is tracking at 10.1%, marking the second straight quarter of double-digit gains.
But here's the issue: earnings are a lagging indicator. They reflect conditions from the past quarter, not where we’re heading. Meanwhile, forward-looking signals are beginning to tell a very different story — one that could align with a major cycle top in the coming weeks.
Intermediate Cycles Are Still Pointing Higher (for Now)
According to our Visualizer tools:
The Nasdaq cycle shows upside potential through May 5
The S&P 500 cycle extends slightly longer into May 12
These short-term cycles suggest there could still be room for further gains. But they also indicate that a top is approaching. Once the intermediate cycle peaks, long-term cycle pressure could resume — likely coinciding with the breakdown we’re starting to see in key leading indicators.
That’s why we’re staying tactical: participating on the upside but tightening stops and remaining alert for early signs of reversal.
Port Traffic Collapse: A Real-Time Warning
One of the most concerning developments isn’t even on most traders’ radar yet: a massive drop in U.S. port traffic.
Long Beach, Los Angeles, and Seattle ports are reporting 35–44% declines in year-over-year volume.
That collapse is already happening and expected to worsen in the coming weeks.
Why does this matter?
Port volume is a leading indicator of supply chain demand. When companies start reducing imports at this scale, it usually means they’re seeing weaker future demand, cutting costs, and reducing orders. This ripple effect touches manufacturing, transportation, retail, and employment — long before it shows up in GDP or earnings reports.
We saw this same sequence unfold in early 2020: containers stacked up, inventory froze, and market cycles reversed — all weeks before the economic data caught up.
A consistent collapse in shipping activity doesn’t just hint at recession risks — it shows how forward planning by businesses is already in retreat. That kind of behavior tends to produce deeper economic slowdowns, even when other data still looks stable.
Manufacturing Slowdown Confirms the Signal
The collapse in port activity isn’t isolated. It’s showing up in regional manufacturing surveys and national indexes:
Dallas Fed (April): -35.8 — worst reading since May 2020
Philadelphia Fed: -26.4
Empire State (NY): -8.1
ISM Manufacturing Index: slipped below 50 to 49.0 — signaling contraction
These aren’t mild slowdowns. They’re clear, consistent declines across key regions, and they strongly suggest that industrial activity is cooling quickly.
And in Steve’s view, manufacturing leads market structure more often than not. These contraction readings validate the potential for a failed breakout if cycles start to roll over in May.
The broader issue here is that policy-driven distortions — like sudden shifts in trade terms, regulatory burdens, or tariff shocks — can quietly choke off industrial momentum before most market participants notice. In this case, what’s happening on the docks and in the order books is likely being fueled by a mix of demand destruction and anticipatory pullbacks in business activity.
We covered these policy-based distortions in more detail recently. Check our post on Tariffs Effect on Economy: How Policy Moves Are Distorting Market Cycles for more info.
Why Leading Indicators Matter More Than Ever
Most investors focus on lagging or coincident data — like payrolls, inflation, or GDP. But those indicators reflect what already happened.
Leading indicators, by contrast, show where the economy and markets are likely headed. At Market Turning Points, we watch them closely because they often line up with projected cycle peaks or troughs, giving us an extra edge.
Right now, the message is loud and clear:
Freight is slowing
Orders are shrinking
Manufacturing is contracting
Forward risk is rising
When you combine that with short-term cycle highs and weakening market internals, you get a very different picture than what the headlines suggest.
Tactically Managing Risk into a Potential Cycle Top
Here’s how we’re handling the current environment:
1. Staying Long, But Light
We’re still participating in the rally — but only with reduced position sizes, and we’re prioritizing short-term trades over long-term exposure.
2. Tightening Stops
We’re layering stops just under the 2/3 and 3/5 crossover averages — key structural levels that nearly broke this week. If they give way, that’s a sign the trend is losing strength.
3. Watching for Price Channel Breakdown
If price breaks below the 5-day price channel, especially after a cycle peak, we’ll begin to look at inverse ETF setups — but only if timing and structure align.
4. Ignoring the Earnings Noise
Strong earnings don’t negate the growing weakness in real-time indicators. We’re staying focused on what lies ahead, not what just happened.
5. Preparing for the May Decline
Visualizer projections show that once this intermediate move ends, the market is vulnerable to a sharp retracement into late May. We’re preparing for that now — not after the breakdown begins.
What Readers Also Want to Know About Leading Economic Indicators
How are leading indicators different from lagging ones?
Leading indicators signal what’s likely to happen next. They include things like new orders, port traffic, and manufacturing surveys. Lagging indicators, like GDP or employment data, tell us what already happened. For cycle-based traders, leading indicators help us time market turns before they show up in the headlines — giving a critical edge when managing tactical exposure.
Why is port traffic such a reliable early warning?
Port traffic reflects real-time behavior in a way few other metrics do. If import volumes are falling by 35% or more, it means companies are actively cutting future inventory — not just reacting to past events. It shows demand expectations are falling now, which often leads to production cuts, job slowdowns, and ultimately weaker market performance.
Also, unlike surveys or sentiment, port volume is data based on actual transactions — not expectations — making it highly actionable when aligned with timing windows.
Can strong earnings offset weak leading data?
Not sustainably. Earnings are based on past performance, and markets price in expectations. When leading indicators turn down, it means future earnings may disappoint, even if current results look solid. Cycles will often top before that disappointment becomes visible — that’s why we lean into structure and timing, not backward-looking numbers.
How do cycles and leading indicators work together?
Cycles identify high-probability reversal zones. Leading indicators help confirm the internal strength or weakness likely to follow those zones. When both are aligned, traders can act with confidence. When they diverge, that’s a red flag to reduce size and increase caution.
Cycle timing sets the stage — leading indicators show whether the actors are ready to play their part.
What should traders do when cycles are topping and indicators weaken?
Stay nimble, stay tactical. This means:
Trading with smaller size
Protecting gains with tight stops
Watching for failed rallies near resistance
Using Visualizer tools to align price action with timing
The objective isn’t to avoid the market, but to respect its conditions. A trader with structure can navigate weakness. A trader without it gets blindsided.
Resolution to the Problem
The market may still be drifting higher, but the backdrop is shifting. As leading indicators break down and cycles approach projected tops, traders need a plan that’s rooted in discipline, structure, and timing.
That’s what we provide at Market Turning Points — a clear framework that helps you:
Recognize early warning signs
Align trades with cycle direction
Manage risk before momentum fades
Earnings might look good today, but forward conditions are telling a different story. Those who wait for confirmation may miss the chance to act.
Join Market Turning Points
If you want to stop guessing and start trading with a clear, cycle-based approach, we’re here to help. With Market Turning Points, you’ll get:
Daily cycle forecasts
Price structure overlays
Tactical entry and exit levels
Visual tools to manage risk with precision
Conclusion
Markets may be rallying, but the weight of evidence from leading economic indicators and cycle timing suggests that this move is on borrowed time. From collapsing port traffic to deepening manufacturing slowdowns, the cracks are starting to show.
Earnings are not enough to sustain a trend if demand is softening, orders are drying up, and supply chains are tightening. That’s the message from the forward data — and it's one that aligns with projected cycle tops now approaching.
Don’t get caught flat-footed. Stay tactical, stay aware, and stay one step ahead with Market Turning Points.
We’re here to help you trade smarter — through every cycle.
Author, Steve Swanson
