There are no changes to the recommendations from Northlake’s Market Cap or Style model to start 2024.  We are sticking with Mid Cap and Growth.  Client positions following the models will continue to own the S&P 400 Mid Cap (MDY) and the Russell 1000 Growth (IWF) for at least another month.  There is underlying movement in the model factors that could trigger new recommendations for February.  The largest influence on the current model readings is the improved stock market breadth.  A secondary consideration is continuing strength in the economy.  Better breadth and GDP growth support small and mid cap and value.  We expect a shift away from Growth next month.

Improved breadth supports our patience with value, small cap, and international in Northlake’s thematic ETF strategies.  Each of these themes has performed much better since the market low in October and our models and research support continued improvement in relative strength. These themes produced solid results in 2023, up about 16%.  However, with the market driven by the Magnificent 7 technology and internet stocks, the gains fell well short of the S&P 500 and NASDAQ, which were up 26% and 44%, respectively.  Northlake has been predicting improved breadth for some time.  We also have noted that improved breadth was necessary to sustain the bullish stock market environment.  Importantly, the shift to better breadth does not mean small and mid cap, value, and international go up while growth goes down.  Rather, we look for better balance in what we expect to be a positive 2024 for stocks in line with historical returns of 8-10%.  More detail on our 2024 market outlook will be included in yearend client letters that should be sent next week.

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.