After a rough stretch for small cap stocks, Northlake’s Market Cap model shifted from mid cap to large cap.  The change was driven mostly by technical and trend indicators that took their cue from the underperformance of small cap stocks in the August and September correction.  The external indicators were less decisive, but one factor that looks at interest rates shifted from small cap to large cap as interest rates rose after the Federal Reserve indicated it was at or near the end of its policy tightening cycle but would keep the Fed Funds rate “higher for longer.”  Smaller companies have less access to capital and are thus more sensitive to changes in monetary policy, interest rates, and financial conditions.  Mid cap stocks lagged large cap, but held up better than small cap due to mid cap’s high exposure to energy stocks, which acted well as oil prices moved higher.

With the Market Cap model moving to a large cap recommendation, we have sold the S&P 400 Mid Cap (MDY) and reinvested proceeds in the S&P 500 (SPY) for clients invested in Northlake’s Models strategy.  The Style model still favors growth, making it seven straight months.  This has been a winning call for all thematic strategies as these client accounts maintain significant exposure to the NASDAQ 100 (QQQ).  Accounts with core positions in SPY also benefit as large cap growth stocks like Apple, Alphabet, Amazon, Microsoft, and Meta dominate the S&P 500.

More detail on market trends and investment strategies related to Northlake’s model and thematic strategies will be included in quarterly client reports that will be distributed next week.

SPY 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.