Shifting to Large Cap and Growth to Finish 2025

The December update to Northlake’s Market Cap and Style models sees new recommendations for both models. After five months recommending mid cap, the Market Cap model shifted to large cap. After four months at neutral the Style model changed to growth. Client accounts using our models will sell the S&P 400 Mid Cap (MDY) and the Russell 1000 Value (IWD) and reinvest in the S&P 500 (SPY) and the Russell 1000 Growth (IWF), respectively.

The new recommendations in each model were driven primarily by the internal indicators that measure technical stock market trends. The external indicators based on economic and interest rate inputs are more neutral. Large cap and growth typically perform well in slower or moderate economic growth environments with stable or low inflation and interest rates. This is mostly consistent with the current environment although investor sentiment on each of these factors will be heavily influenced by next week’s Federal Reserve meeting when the Fed will announce interest rate policy and update its economic outlook.

During the final month of the prior model recommendations, Northlake’s thematic strategies performed well thanks to positive market breadth during November. The Market Cap model was recommending mid cap which beat the S&P 500 by about 2%. The Style model had a neutral reading for November that led to very modest outperformance. The switch to large cap and growth could be well timed after each underperformed last month due to a correction in the AI trade that is dominated by the Mag 7 which comprises nearly 40% of the weighting in the S&P 500.

With one month to go, the Market Cap model has performed well this year, capturing much of the strength in growth stocks earlier in the year. The Style model trails the benchmark year to date as small and mid caps have not been able to consistently sustain their bouts of relative strength when the model has found them attractive.

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