There are no changes to the signals from Northlake’s Market Cap and Style models for July.  The Market Cap model is recommending large cap for the second consecutive month and the Style model favors large cap growth, as it has since November 2014.  Given the latest model readings, Northlake client positions following the models will continue to own the S&P 500 (SPY) and the Russell 1000 Growth (IWF).

The Market Cap model shifted back toward a mid cap but there was not enough change to flip the signal.  It does appear that a stable reading for August when the model is next updated would move the signal back to mid cap.  Three underlying factors moved from large cap to small cap, while none moved the other way.  A technical indicator comparing moving averages of the Russell 1000 and Russell 2000 moved reflecting the recent strong relative performance of small caps compared to large caps.  The ratio of coincident to lagging economic indicators moved back in favor of small caps after a month at large cap.  This indicator has been volatile because the economic data coming from the U.S government has been inconsistent.  A steepening of the yield curve (long-term interest rates higher relative to short-term interest rates) is the final factor that moved toward small caps.  A steeper yield curve historically is a sign of better economic growth ahead, something that usually favors small cap stocks.

There were two indicator changes in the Style model with both moving from growth to value.  However, the growth signal remains quite strong and is unlikely to change for at least another couple of months.  Both indicators are part of the internal technical section of the Style model and reflect the late month, Greece-related swoon in the market when growth stocks led the market lower.  Northlake does not see this short-term move lower in growth stocks as necessarily proving important given that growth has significantly outperformed value so far this year.  The big fall in growth stocks at the very end of June was mostly due to profit-taking, in our opinion.

Both models performed well in the first half of 2015.  On a price only basis, the growth model gained about 3.5% against a rise of only 0.2% for the S&P 500.  Growth sharply outperformed value so far this year with major value indices flat to slightly down year-to-date.  The Market Cap model is up about 2.4% in 2015 on a price only basis, also comfortably ahead of the S&P 500.  A small cap signal would have outperformed the model but this is still a good result.

SPY 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.