There are no changes to the recommendations from Northlake’s Market Cap and Style models for March.  The Market Cap model remains on a Large Cap signal and the Style model is still recommending Growth.  With no changes to the signals this month, Northlake client assets following the models will remain invested in the S&P 500 (SPY) and the Russell 1000 Growth (IWF).

Despite extensive volatility in the stocks, commodities, bonds, and currencies, there was little movement in the factors underlying the models.  The Market Cap model moved slightly more deeply in favor of large cap for the month. However, this was a function of the two month smoothing process that determines the final recommendation.  It was the January data feeding February’s signal that saw the big move in favor of large cap.  For March, there was one indicator that moved in each direction.  A technical indicator that measures stocks vs. their 200 moving average moved to small cap because the lagging performance of small caps over the past several months reached highly unusual extremes.  A valuation indicator went in the opposite direction, shifting in favor large cap, reflecting the greater stability of large company earnings when concerns about the economy are high.

The Style model only saw one indicator change.  A measure of price momentum moved from value to growth.  A surprising element of February’s stock market action was that value stocks outperformed growth stocks despite the bearish volatility being driven by worries that the global economy was falling into a recession.  Usually growth does better when the economy is weak since growth companies do not require a cyclical tailwind to produce higher profits and cash flow.  In Northlake’s opinion, February’s performance by value stocks is a function of high frequency trading and extremely high correlations among assets classes.  Investors seem desperate to catch what is perceived as huge move off the bottom in energy, commodity, industrial, and financial stocks.  These sectors collapsed last year even as growth stocks rallied.

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.