Northlake’s Market Cap model flipped from mid cap to large cap for February.  The model is picking up the potential for slowing economic growth and higher inflation from policies being put in place by the new administration.  Either of these outcomes for the economy historically have led small and mid-cap stocks to underperform large cap.  The same is true for growth outperforming value.  Small and mid-cap companies generally have more sensitivity to economic growth and more debt that is impacted by higher interest rates often associated with inflation.

With the new large cap signal, the models are now aligned for the uncertainty that accompanies the significant changes in policy being undertaken by the Trump administration.  The outcome of these policies is uncertain given that they are reversing decades of policy and regulation that have been in place for the U.S. with allies.  Uncertainty is a good time to have less risk.  Large cap and growth traditionally have less risk defined as volatility in stock prices.  All-time concentration of the major growth and large-cap indices in technology stocks could mean historical performance may not repeat.  The recent plunge in semiconductor stocks like Nvidia on the new DeepSeek AI model from China is a good example of the risk associated with the massive gains and valuation expansion for leading technology stocks in the last several years.

Northlake client assets that follow our models will swap from the S&P 400 Mid Cap (MDY) to the S&P 500 (SPY).  Current holdings in the Russell 1000 Growth (IWF) will be maintained.  Clients following thematic strategies but not using Northlake’s models will continue to maintain a broadly diversified portfolio of themes that provide exposure to all capitalization sizes and growth and value.

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