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May 02, 2014

Value and Mid Caps Still in Favor

There were no changes in Northlake’s Market Cap or Style models for May. The Market Cap model continues to recommend mid cap and the Style model still favors value. With no changes for May, client positions in the S&P 400 Mid Cap (MDY) and the Russell 1000 Value (IWD) will be held for at least another month.

The Market Cap model saw some movement toward large cap as the trend indicators moved from a neutral reading to favoring large cap. This is no surprise as small and mid caps fell last month, while large caps had a small gain. The trend indicators measure recent performance and widely used by used by short-term traders. In the model, they are present to add timeliness and provide balance against the economic indicators which look at monthly data over longer time frames. Overall, the indicators in the Market Cap model are mixed but trending toward large cap. The conflict is between indicators that are picking up a good and possibly firming economy and trend and technical indicators reflecting the rotation in the market away from small cap and growth stocks.

The Style model has moved to a stronger value signal even though no underlying indicators shifted for May. Please recall that in April the indicators shifted sharply in favor of value. Those indicators remain deeply in value territory this month. The Style model is picking up generally improved economic and the stock market’s rotation from growth to value. Another way to think about it is that the stock market and the model are shifting toward later cycle views.

Last month the models put in a mixed performance. The Market Cap model’s mid cap signal held up a lot better than small caps but still produced a loss with the S&P 500 in positive territory. The style model did well gaining about 1%, ahead of the S&P 500 and the flat performance for the Russell 1000 Growth index. To get a better gauge of the rotation in the market, small cap growth fell 5% last month. Year to date both models are in positive territory but trail the appreciation in the S&P 500 by approximately 1%.

MDY and IWD are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts. Steve is sole proprietor of Northlake, a registered investment advisor. Northlake’s regulatory filings can be found at www.sec.gov.

Posted by Steve Birenberg at May 2, 2014 10:22 AM in Models