Despite a lot of underlying movement in the indicators, there are no changes to the recommendations from Northlake’s Market Cap and Style models.  The Market Cap model remains on a small cap signal and the Style model still reads neutral on growth vs. value.  With no changes to the signals, client positons in the Russell 2000 (IWD), the Russell 2000 Value (IWN), and the Russell 2000 Growth (IWO) will be held at least one more month.

Both models saw substantial movement in their internal indicator readings.  Internal indicators measure stock market technical and trends, so given the large variation between small and large cap stocks and growth and value stocks so far this year, the internal indicator readings changed.  Recently small caps have lagged and growth has led, so the internal indicators shifted from small to large cap and value to growth.  The external indicators, purposefully designed to be less volatile and focused primarily on economic data, remain solidly recommending small caps and value.  The message from the external data is that the economy is in good shape.  This usually leads to good performance for small caps and value.  The actual daily trading action recently might be sending a signal that the external data is going to change.  The models are purposefully designed to work this way with internal indicators providing timeliness and external indicators focusing on the longer term big picture themes.

So far this year, the models have been off target due to the small cap signal form the Market Cap model.  Small caps have given up some of their strong relative performance at the end of 2016.  So far, Northlake sees that as a normal relative correction rather than the end of the Trump Trade that favors small caps.  The small cap signal has led to poor relative performance from the Market Cap model in 2017.  Growth and value have been fairly even this year but the small cap signal has investment focused on small cap growth and value, contributing to underperformance for the Style model as well.  Thankfully, individual stock performance has been excellent this year offsetting the performance of the models.

IWM, IWN, and IWO 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.