There were no changes to Northlake’s Market Cap and Style models for September.  The Market Cap model is recommending mid cap for the second consecutive month and the Style mode is neutral between growth and value for the fourth straight month.  For clients using our model strategies, this mean positions in the S&P 400 Mid Cap (MDY), Russell 100 Growth (IWF), and Russell 1000 Value (IWD) will be held at least one more month.  For client thematic strategies that do not use Northlake’s models, the current model recommendations and the underlying movement in model factors in this month’s update support our favored thematic exposure to financial, health care, and industrial index ETFs along with small cap value.

The Market Cap model showed movement toward small cap with modest shifts in technical/trend and economic/interest rate factors.  The movement toward small cap is reflective of improved stock market breadth since the early August market low, certainty that the Fed will begin to ease monetary policy and cut rates in September, and continued supportive economic data that indicates recession risk remains low.  This backdrop also is reflected in modest movement toward value in the Style model.

August had unusual volatility with a market plunge to start the month followed by a steady move higher.  Major stock market indices enter September just below July highs.  Value led the major indices higher in August with Magnificent 7 all responding poorly to their latest earnings results.  We do not see many troubling signs for the Magnificent 7 and other leading tech/growth stocks beyond elevated valuations that had set extremely high expectations for the latest quarterly earnings reports.  Small and mid cap trailed large cap in August but have outperformed over the past couple of months.  Northlake continues to believe market breadth will expand and that expansion is necessary to sustain a bullish trend in equities.  September is often a difficult month for markets, and in Presidential election years September and October have often been challenging, but Northlake forecasts that the market will end 2024 higher than the end of August close.

MDY, 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