There are no changes to the recommendations from Northlake’s Market Cap and Style models for the month of September.  Mid Cap and Growth continue as the favored themes.  As a result, current client positions that follow the models will remain invested in the S&P 400 Mid Cap (MDY) and the Russell 1000 Growth (IWF).  The strength of the signals on each model was unchanged this month.  Growth remains quite strongly favored and mid cap is just above the range where large cap would kick in.

While the model readings are not much changed for September, there is evidence of the market correction in the data that underlies the models.  In the Style model, two trend based indicators in the internal indicator bucket flipped from growth to value.  Both of these indictors compare short-term moving averages of growth and value stocks to long-term moving averages.  During the market plunge in August, growth stocks led lower, reversing a portion of their material outperformance so far in 2015.  The Style model sees this as a sign of a possible change in the trend of growth over value.

On the other hand, one internal Style model factor went from value to growth.  This indicator, called Net New Highs, measures 52 week highs and lows for growth and value stocks.  Some growth stocks made new highs in August (indicating strength), while value stocks continue to plumb 52 week lows.  The model sees this as evidence that growth should reassert its outperformance.  This indicator also fits well with the current market turmoil which is centered on fears of slowing global GDP growth due to the collapse of oil prices, industrial commodities, and emerging market currencies.  Companies most directly exposed to these trends are primarily in value indices.

During August, neither model produced a return in great variance with the overall market.  MDY was down 5.7%, a bit better than the -6.1% loss for the S&P 500.  IWF fell -6.1%, the same as the market and the -6.0% drop in the Russell 1000 Value (IWD), the comparable value index.   The growth signal still looks quite good since it went into place in November 2015.  Since that time, IWF is up over 1% and IWD is down almost 10%.  The mid cap signal was new in August.

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.