Growth Rally Cools: Style Model Slides to Neutral

Northlake’s Style model is scaling back its pro-growth stance for August, moving from Growth to Neutral. Client strategies that follow our models will trim half of the Russell 1000 Growth (IWF) holding and reallocate the proceeds to the Russell 1000 Value (IWD). There is no change to the Market-Cap model, which continues to favor mid-cap stocks after last month’s shift. Thematic strategies that do not use our models remain broadly diversified and already hold both growth and value exposure. The growth call served investors well. Since the last change at the start of May, IWF has gained over 18%, comfortably ahead of the roughly 8% rise for IWD. Lowering the tilt now locks in a portion of that outperformance while giving portfolios a steadier footing should volatility pick up.

The data driving this adjustment point to a market that is broadening out rather than relying on a narrow group of mega-cap winners. Fewer stocks now sit above their 200-day moving averages, and a key short-term trend line has slipped beneath its long-term counterpart—historically a sign that momentum in high-growth names is cooling. At the same time, the U.S. dollar has regained strength, a development that often pinches overseas revenue for global tech leaders but can improve the relative outlook for domestically focused, dividend-oriented companies. Finally, analysts have begun raising earnings estimates for a wider range of industries, suggesting that future leadership may be shared more evenly between growth and value sectors.

Because our process is rules-based, these shifts translate directly into portfolio action. By pairing IWF with IWD, we reduce concentration risk in a handful of technology giants while ensuring we still participate if innovation continues to drive returns. Value-oriented holdings bring steadier cash flows—and the dividend support that can cushion portfolios if the economic picture softens. The mid-cap bias introduced last month remains intact, reflecting our belief that companies in the middle of the size spectrum offer a favorable blend of earnings power and balance-sheet strength in a still-uncertain policy environment.

Breadth has already improved beneath the surface. Mid-cap, small-cap, and emerging-market indices each climbed about 10 percent during May and June, roughly matching the gain in the S&P 500 even as headlines focused on the “Magnificent 7.” Our models captured much of that move: the May growth signal alone added more than 10 percentage points of relative value versus staying solely in IWD, and the July switch to mid-cap is running a small but encouraging edge over large caps.

We are comfortable with a Neutral stance while tariff concerns, interest-rate swings, and mixed economic readings keep the outlook hazy. A balanced approach lets us benefit if growth reasserts itself yet positions us to hold ground should value and dividend payers continue to gain favor. As always, we will watch our dashboards closely; the Style model will shift again if the evidence warrants. In the meantime, thank you for your continued trust. Please reach out any time with questions about these moves or about your broader financial plan.

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