After six months recommending mid cap, Northlake’s Market Cap model has shifted to a large cap signal.  Current client positions following the model and held in the S&P 400 Mid Cap (MDY) will be sold and the proceeds will be reinvested in the S&P 500 (SPY).  Some clients will continue to own mid cap via either MDY or the Russell Mid Cap (IJH) as an investment in core U.S. stocks.  There was no change to the growth signal from the Style model, so client positions in the S&P 500 growth (SPYG) and the Russell 1000 Growth (IWF) will be held at least one more month.

The Market Cap model’s change to large cap reflects recent technical and trend trading indicators that strongly favor large caps.  This is due to recent outperformance for large caps and is consistent with the other reason behind the switch to large caps:  slowing U.S. economic data.  Large cap stocks tend to outperform when the economy is slowing as small cap companies are more cyclical and more sensitive to U.S. economic growth.

A similar dynamic is the reason the Style model has recommended growth throughout 2019.  Growth stocks need less help from the economy to produce gains in earnings and cash flow.  The reason why growth has been recommended all year but the Market Cap model held on to mid cap until this month is that it is only more recently that economic data moved from a long stretch of below average but steady growth to a modest deceleration.

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