Both of Northlake’s models have been on the move over the past six months.  At the start of August, the Market Cap model shifted from large cap to mid cap.  At the start of May, the Style model shifted to neutral after a yearlong run of growth signals.  These changes reflect continued strength in U.S. economic growth and a broadening of the bull market beyond the Magnificent 7 and other leading growth stocks.  The latest model readings for December signal another shift in Market Cap preference to small cap.  However, the reading is weak and barely over the line from mid cap to small cap.  Therefore, as we have done previously, we are going to sit tight with the current mid cap signal and await further confirmation from a stronger signal when the model updates at the start of 2025.  Clients that use thematic strategies but do not use our models already have exposure to small cap through core and thematic ETF positions.

Looking more closely at the models, the trends toward the current signals can be seen clearly.  The move from growth toward value (now in the neutral zone) is being driven mostly by the economic indicators.  The Market Cap model move from large cap to small cap has come about due to both economic and technical and trend indicators. To reiterate, the models are picking up on ongoing strength in U.S. economic growth and broader participation of stocks across the entire market in the latest phase of the ongoing bull market.

Given our decision to sit tight and await further confirmation of the new small cap signal, clients who use our models will continue to hold the S&P 400 Mid Cap (MDY), the Russell 1000 Growth (IWF), and the Russell 1000 Value (IWD) for the balance of 2024.  Small cap value exposure held in thematic strategies not using our models will also be maintained.

MDY, IWF and IWD 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