There are no changes to the signals from Northlake’s Market Cap and Style models for October.  For the third consecutive month, the Market Cap model continues to favor Mid Cap.  As it has since November 2014, the Style model is recommending Large Cap Growth.  With no changes to the model recommendations for October, Northlake client assets invested in the model strategy will continue to own the S&P 400 Mid Cap (MDY) and the Russell 1000 Growth (IWF) for at least another month.

The data underlying the models was quite stable this month.  Within the Market Cap model, no individual factors shifted their recommendation.  The internal factors focused on stock market technical indicators continue to unanimously favor large cap, while the external factors focused on the economy and interest rates decisively favor small cap.  The spilt decision leads to the Mid Cap recommendation for the entire model.  This month’s readings are consistent with recent stock market activity.  Small cap took a hard hit in August and September and investor sentiment is bearish so market technicals favor large cap.  However, the worries triggering the decline are mostly based abroad where small cap companies have a lot less exposure, especially in emerging markets which are the epicenter for current investor angst.

There was movement in two internal indicators in the Style model with one flipping from growth to value and other from value to growth.  Internal indicators are beginning to look more balanced between growth and value, possibly a sign that the long run favoring growth is nearing an end.  However, external indicators remain overwhelming in favor of growth, reflecting the benefit of growth stocks when economic data is mixed.

Performance for the models has been good this year although little value added was gained during the third quarter.  The Market Cap model lost -7% in the third quarter, the same as the decline in the S&P 500.  The model did do well to avoid small caps all quarter, as the Russell 2000 fell by over 12%.  Year to date the Market Cap model is down less than -5% on a price only basis, better than the almost -7% decline for the S&P 500.  The Style model fell -6% during the third quarter, a bit better than the market.  Year to date, the Style model has done quite well sitting on a growth signal, with a decline of less than 3%.  Negative returns are never good but limiting losses in bearish market periods is very helpful toward meeting long-term goals.

MDY 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.