There were no changes to Northlake’s Market Cap and Style model signals for June. Mid Cap and Growth continue to be favored. As a result, client positions in the S&P 400 Mid Cap (MDY) and the Russell 100 Growth (IWF) will be maintained for at least another month.
It does appear likely that the growth signal that has been place all year could shift to value for July. Weak performance by growth stocks last month shifted the trend indicators to value. Along with weakening growth signals from a few other indicators, the one month only reading of the Style model is in value territory. The models use a two month smoothing to determine the final reading so barring a quick shift back in favor of growth emanating from July data inputs it seems that a value signal may be in the cards for July.
Growth stocks are dominated by technology companies many of which are multinational. Technology has no language or cultural barriers. Several technology companies have noted weak demand from Europe which is being multiplied on the income statement by the weak Euro. A softening in the domestic economy is also at work impacting the indicators.
In May the models were off target as Mid Cap rose almost 2% but lagged the 3% plus gains in large cap and small cap. As noted, technology dragged down growth indices in May leading to a gain of just over 2% against an almost 5% gain for value stocks. With half the year done, the Style model — growth all year — has matched the S&P 500 return of over 9%. The Market Cap model is lagging the S&P 500, up 6%, as investors have been cautious about taking on the added risk of small and mid cap stocks with the Europe crisis simmering and slowing GDP growth in China and the US.
Disclosure: MDY and IWF are widely by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts. Steve is sole proprietor of Northlake, an Illinois-registered investment advisor. Regulatory and disclousre filings can be found at www.sec.gov.