There are no changes to the recommendations from Northlake’s Market Cap and Style models for September.  The Market Cap model favors mid cap for the third straight month, while the Style model is recommending growth for the sixth consecutive month.  Client positions that follow the models will remain invested in the S&P 400 Mid Cap (MDY) and the Russell 1000 Growth (IWF) for at least one more month.

There was slight movement in the underlying model indicators with the growth signal weakening and the mid cap signal shifting toward small cap.  The growth signal is most likely the next to change.  This would not be a surprise given persistent strength in the U.S. economy that supports value stocks in industries like finance, energy, and industrials.  Northlake has maintained a more optimistic outlook for the economy than the consensus forecast.  As a result, in client strategies that do not use the models, we have maintained value exposure.

We do see some slowing in the economic data, which stock market investors like for now as it limits further monetary policy tightening by the Federal Reserve.  The yield curve remains inverted but the latest movement has been toward a steeper curve which is supportive of value and small and mid cap stocks. Despite, the fact that Northlake views the outlook for value favorably, we always listen to and follow the recommendations from our models where they are used in client accounts.  Disciplined use of investment strategies is an important component of long-term success for investment management.

The current growth signal has been a big win, with IWF up almost 16% against mid-single-digit returns for other market sectors.  The shift to mid cap two months ago has been neutral so far with large, mid, and small cap indices all up about 2%.

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.