There are no changes to the signals from Northlake’s Market Cap and Style models.  Large Cap and Growth remain the favored themes.  This is the 6^th straight month for large cap and the 2^nd straight month for growth.  Client positions in the S&P 500 (SPY) and Russell 1000 (IWB) and the Russell 1000 Growth (IWF) and S&P 500 500 Growth (SPYG) will be maintained for at least another month.  Both models had some significant underlying movement in their indicators though neither appears set to flash a new signal next month.

The Market Cap model moved modestly toward mid cap from the very strong large cap signal that has been in pace for most of the past year.  This is the result of improvement for small cap stocks in the internal indicators that mostly measure technical trends and momentum.  After very weak performance relative to large caps through October 2018, small caps have firmed up and outperformed sharply in January’s strong market rally.    The internal indicators are designed to improve timing of the model and thus are purposefully sensitive to recent market action.  Stock prices are leading indicators so you want to have an early influence of potential changes in macro indicators for the economy and interest rates.  As of now, the external indicators in the Market Cap model still strongly favor large caps.  This can be interpreted as consistent with slower economic growth prospects in 2019.

The Style model saw its external indicators move from favoring growth to favoring value.  This indicates that economic growth may be slowing but it is stabilizing at lower rates.  The impact of a weaker dollar due to the Federal Reserve backing off its tightening policy is a benefit to value sectors like industrials and energy.  The internal indicators still strongly favor growth as the poor performance in growth stocks in late 2018 quickly reversed in January.

The models got off to a good start in January.  With the Market Cap model invested in the S&P 500, clients kept up with the big January rally.  A small or mid cap signal would have been even better but it is hard to complain with matching a 7% gain.  Growth was in the lead in January allowing the Style model to return almost 10% with its ownership of large cap growth ETFs.

SPY, IWF, and SPYG 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