During June, the stock market rally expanded beyond large cap growth and megacap tech to include small and mid cap.  The S&P 400 mid cap was the best performer among the major capitalization weighted indices in June, producing a total return of 9.2%.  The small cap Russell 2000 was next best at 8.0%.  The S&P 500 and NASDAQ Composite also performed very well, with total returns of 6.6% and 6.7%, respectively.  The improved market breadth flipped Northlake’s Market Cap model from recommending large cap to favoring mid cap.  As a result, client accounts that use Northlake’s model strategy will swap current holdings in the S&P 500 (SPY) into the S&P 400 Mid Cap (MDY).  Other thematic strategies that do not use our models are already invested to expanded market breadth.

The switch to mid cap is entirely driven by the internal signals that measure technical and trend indicators.  In turn, technical and trend are heavily impacted by shifts in market breadth.  The Market Cap Model’s external signals that measure economic and interest rate factors remain firmly in support of large cap.  Thus, the new mid cap signal is a weak one but within the zone that recommends a shift in exposure.

The Style model continues to strongly favor growth, with internal indicators unanimous for growth and external indicators evenly split between growth and value.  Mid cap has less exposure to growth with heavier weightings in value sectors like energy and financials, so our shift somewhat balances out our models’ strategy.

SPY, 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.