There are no changes to the recommendations from Northlake’s Market Cap and Style models for November.  For our Market Cap theme, we continue to favor mid cap.  In our Style theme, we remain neutral between growth and value.  There will be no changes to client positions in the S&P 400 Mid Cap (MDY) or the Russell 1000 Growth (IWF) and Russell 1000 Value (IWD).  Our neutral stance on growth vs value means that we own exposure to both growth and value.

During October, the market declined for a second consecutive month with growth stocks being the weakest performers.  Our shift to neutral on Style at the start of September has been timely so far. The improved performance for value began in September.  There was little change in the path of the economic recovery over the past month, as economic data continues to be solid despite the rise in COVID cases in the U.S. and Europe.  Overall stability in market trends and economic data from September to October explains why there are no changes to our recommendations in our thematic strategies.

The Presidential election could lead to changes in our recommendations.  In general, a Biden victory and Democrats taking over the Senate is likely good for value and small and mid cap stocks.  The idea is that with full Democratic control a much larger stimulus than currently being discussed will happen.  The market impact of a Trump victory is less clear.  Wall Street has usually liked it when one party does not fully control the executive and legislative branches.  There are real issues to address but the old adage that investors hate uncertainty receives a boost when the getting anything done in Washington is difficult. 

Wall Street is most concerned about a bitter and divisive aftermath to the election.  This is best reflected in current elevated readings of stock market volatility.  We anticipate that lower volatility lies ahead in all but the worst case post-election scenario.  Back in 2000, when the election was not decided until early December when the Supreme Court ruled on the Florida recount, the market fell about 5% during the period of uncertainty.  Given all the concern about the post-election situation this year, we believe the market has at least partially discounted a negative scenario.  Back-to-back monthly market declines would support this view. 

MDY, IWD, 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.