Northlake’s Style model is recommending Growth again after two months with a neutral signal.  The model is picking up on risks to the economic outlook caused by the chaotic implantation of large tariffs on friends and foes alike.  Soft data based on surveys of businesses and consumers already reflect heightened recession risk.  Economic data releases in May will give an initial insight into whether hard data is weakening.  Growth stocks are more defensive in weak economic environments as they are not as reliant of GDP growth to drive earnings.  Model factors focused on the economy firmly favor Growth.  Growth stocks led the market lower from the all-time highs in mid-February after Chinese company, DeepSeek, released a highly efficient and competitive large language model for AI.  Declines in the Mag 7 were harsh, reaching 20% or more in some stocks.  April saw technology growth stocks firm up as investor concern shifted to the possibility of a recession.  This led to pressure on value stocks in the consumer, industrial, and financial sectors.  Improved relative performance in growth stocks in the past month provided a boost for the growth theme in the technical and trend indicators.  With our Style model now favoring growth, we are shifting current investments in the Russell 1000 Value (IWD) to the Russell 1000 Growth (IWF).  Thematic strategies that do not use Northlake’s models maintain significant growth exposure through ownership of the NASDAQ 100 (QQQ) and the growth-dominated S&P 500 (SPY/IVV).

The Style model shifted to Neutral to begin March.  Over the past two months, IWF fell by 4.4% and IWD declined by 6%.  The neutral signal proved slightly disappointing, although 1% relative performance difference is within the margin for error.  The models are designed to find much larger performance discrepancies with multi-month time horizons.  The current large cap signal from the Market Cap model has been in place since the start of February.  So far, it is providing value added with the S&P 500 (SPY) down 6.2% and the S&P 400 Mid Cap (MDY) down 9.9%.

SPY, IWD, and IWF are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts.  Steve is the sole proprietor of Northlake, a registered investment advisor.  Northlake’s regulatory filings can be found at www.sec.gov.