There are no changes to the recommendations from Northlake’s Market Cap and Style models for October.  The models continue to favor large cap and remain neutral on growth vs. value.  For clients with assets invested in Northlake’s models, positions in the S&P 500 (SPY), Russell 1000 Growth (IWF), and Russell 1000 Value (IWD) will be held at least another month.  Within our ETF-only thematic strategies, we continue to overweight small caps and value beyond investments in Core Index ETFs.  Northlake believes that economic growth will sustain above pre-pandemic levels at least through 2022 despite recent slowing and less accommodative fiscal and monetary policy.  This is slightly at odds with our models but not so far as to trigger a cutback in small cap and value exposure.

The models had very little change this month.  The large cap recommendation strengthened, as did the neutral call on Style.  Among the underlying indicators, the most interesting change is related to the recent strengthening of the dollar.  Dollar strength has been triggered by the recent increase in intermediate and long-term interest rates and steepening of the yield curve.  The dollar, interest rates, and the yield curve have been in focus for traders recently.  The latest moves all support value over growth and small cap over large cap, and are supportive of our stance to stick with those overweights for our ETF-only thematic strategies.

One other point worth highlighting is the recent improvement in COVID data.  Case counts have rolled over even as testing has risen with positivity rates falling.  More importantly, hospitalizations have rolled over.  Today’s news that Merck is seeking emergency authorization for a pill that has cut hospitalizations by 50% among infected individuals with a co-morbidity adds to the good news on COVID.  There are no guarantees, and winter has shown a tendency to worsen COVID as people spend more time indoors.  We are hopeful that much higher vaccination rates will soften the COVID uptick this winter.  For the market, the better news on COVID is positive for small and mid cap, value, reopening, and international stocks.

SPY, IWF, and IWD 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.