There are no changes to the recommendations from Northlake’ Market Cap and Style models for February.  Mid Cap and Large Cap Growth remain the favored themes.  As a result, client positions following Northlake’s models will remain invested in the S&P 400 Mid Cap (MDY) and the Russell 1000 Growth (IWF) for at least another month.

Underlying movement was in the direction of large cap and growth, suggesting the possibility that the Mid Cap signal could shift to Large Cap next month.  This possibility plus the even stronger growth signal makes it unlikely that the Large Cap Growth signal from the Style model shifts for March.

Within the Market Cap model, the shift toward large cap was concentrated in the internal composite.  Specifically, the weak stock market in January was accompanied by deterioration in breadth (# of advancing vs. # of declining stocks) that led the Stocks Above 50-Day Moving Average and Percent of New Highs indicators to shift to large cap signals.

The Style model saw two indicators move from value to growth, while just one went in the other direction.  January’s market decline as driven by worries over the collapse in oil prices and unusual volatility in foreign currencies accompanied by strength in the U.S. dollar.  This led investors to question the sustainability of global economic growth and whether the U.S. economy could continue its solid growth path if international economies weaken.  This mixture of events favors growth stocks, which are viewed as less cyclical and economically sensitive than value stocks.

The updated Market Cap and Style models have been in use for two months and so far the signals have been accurate.  Large Cap Growth has produced a small gain, while all of the value alternatives are in the red.  All three Market Cap options are down since December 1^st but Mid Cap has held up best, declining less than 1% against a drop of more than 3% for the benchmark S&P 500.  Model holding periods average four to six months, so it is early to judge the latest signals, but we are pleased that the revised models are off to a good start.

MDY and IWF 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.