As is often the case when Northlake’s models are transitioning from long established trends, there is more volatility in the monthly signals.  Last month, we took the unusual step of moving directly to large cap from small cap when it was obvious from the data that the Market Cap signal would flip to large cap for June.  The fresh data confirmed our decision, with one of the stronger large cap readings for the Market Cap model in the past five years.  During May, the swap from small cap to large cap provided incremental performance for client portfolios using Northlake’s model strategy.

The Style model moved back to neutral for June making the last four month’s readings growth, neutral, value, neutral.  Due to this change, we moved half of Northlake client holdings in the Russell 100 Value (IWD) back to The Russell 1000 Growth (IWD).  Market Cap model exposure remains in the large cap S&P 500 (SPY) for June.

The current transitional period reflects uncertainty over the path for inflation and economic growth and how Federal Reserve policy will change over the balance of 2024.  Inflation has proved sticky at levels slightly above the Fed’s target.  Recent economic data shows continued growth but at a slower pace.  Technical and trend factors are also creating volatility in the model signals.  After many months through 2023 when virtually all the market gains were concentrated in large cap technology growth companies, since late last year there have been fits and starts of improved stock market breadth.  Small and mid cap stocks and value stocks have had periods of strong outperformance that so far have not lasted long enough to establish new trends in their favor.  We have communicated about and advocated for improved breadth for a long time.  We still see it developing but these transitions can take time to get firmly established.  Clients using Northlake’s Thematic strategies but not our models are currently positioned for improved breadth.

SPY, IWF and IWD 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.