The latest signals from Northlake’s Market Cap and Style models once again are unchanged. For May, the Market Cap model still favors small cap and the Style model remains in value mode. Northlake client positions dedicated to the models will remain invested in the Russell 2000 (IWM) for small cap and the Russell 1000 Value (IWD) for value.
May is the 4th consecutive month the Market Cap model has signaled small cap and the 11th straight month the Style model has recommended value. The models generally reflect a recovering economy and an increased appetite for risk among investors. This is consistent with my own outlook for the market and the economy with the biggest risk being a sharp correction where the higher volatility of small cap and value stocks hurts returns in the short run.
Fortunately, the model signals have been on target in the latest month, year to date, and since they went in place. Last month the S&P 500 returned 1.48% on a price only basis while small caps as measured by IWM gained 5.87% and value as measured by IWD gained 2.60%. So far this year, the Market model has returned 15.41% and the Style model is up 9.16% against a price only gain of 6.42%. The 11 month run in the Style model for value has generally worked well with a gain of almost 32% against growth at 28% and the S&P 500 at 29%.