After six months favoring Mid Cap, Northlake’s Market Cap model shifted to a Large Cap recommendation for June.  As a result, Northlake client positions held in the S&P 400 Mid Cap (MDY) were sold and the proceeds were reinvested in the S&P 500 (SPY).  The Style model continues to recommend Growth over Value, as it has since the beginning of November 2014.  With Growth favored for June, client positions in the Russell 1000 Growth (IWF) will be held at least one more month.

The shift from mid cap to large cap was broad based with four of the sixteen underling factors in the Markets Cap model flipping from small cap to large cap for June.  This leaves all but two of the underlying indicators in large cap mode.  Furthermore, both internal and external indicators, have seven of their eight factors in the large cap column.

The Style model moved further into growth mode for June with two indicators shifting in favor of growth and one in favor of value.  This leaves twelve of the fourteen indicators in the Style model recommending growth.  An already strong growth signal has gotten even stronger.

Looking at the mix of indicators that moved in each model reveals investors have an improved outlook for the economy over the next several quarters with the consumer in the lead.  Coming off a disappointing first quarter for GDP with energy prices lower and job and income growth higher, this is a logical step for investors.  The shift to large cap also reflects investor expectations that interest rates are going to continue to rise as the Fed eventually begins to raise the Federal Funds rate.  Market-determined interest rates have already moved up considerably, although they remain at low levels.    Rising rates support a more defensive stance toward the market and large caps cooperate since they are less volatile than small and mid caps.

The recently completed mid cap signal was quite accurate.  While it was in place, MDY was up almost 6% against a gain of just 2% for the benchmark S&P 500.  This is the first completed signal since the models were revised late last fall, an encouraging sign that our work was on target.  The Style model is also performing well with the current eight month old growth signal also outperforming.  Since it went in place on 11/1/14, IWF is up over 7%, comfortably ahead of the 3% gain for its direct counterpart in large cap value (IWD).

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.