After reviewing the latest updates, we are sitting tight with the current recommendations from our Market Cap and Style models.  The small cap signal that flashed for February held for March.  Current positions following the Market Cap model and held in the Russell 2000 (IWM) will be maintained at least another month.  The small cap signal remains right on the border line between small and mid cap.  A small cap signal from the Market Cap model can lead to owning small cap growth or value depending on the Style model recommendation.  Since the small cap signal is not well established, we are sitting tight with the Russell 1000 Growth (IWF) for the twelfth consecutive month.

We are pleased to see the models supporting our hope for and expectation of a broader stock market advance.  The first month for the small cap signal was a success and slightly outperformed the S&P 500 in February.  Participation from small caps is important to sustaining the bull market even if the Magnificent 7 continue to perform well.  There have been some cracks in the Mag7 recently.  Tesla, Apple, and Alphabet are all down this year despite the great gains in Amazon, Nvidia, Meta Platforms, and Microsoft.  Other large stocks in tech and beyond have done well this year but small cap stocks have yet to fully engage with the bull market.  The setup for small cap is good with an improving outlook for the economy and the prospect for the Fed to ease monetary policy beginning in May or June.  These fundamental factors could also revive value stocks.  This is evident in the external indicators including in the Style model but the technical and trend indicators still strongly favor growth.

Recently improved breadth has been good news for our favored sectors of health care, industrials, and financials.  We have liked these sectors for our strategies that do not use our models but invest thematically.  The bull market has been global which is leading to better performance for international ETFs, especially in developed markets with Japan reaching a 40-year high and Europe a 52-week high.

IWM 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.