Shifting to Mid Cap Amid Resilient Economy and Good Market Breadth

Northlake’s Market model is switching its recommendation from large cap to mid cap for July. As a result of this change, for client strategies that use Northlake’s models, we are swapping current positions in the S&P 500 (SPY) to the S&P 400 Mid Cap (MDY). There are no changes to the growth recommendation from the Style model. Clients using thematic strategies that do not include our models have exposure to mid and small cap due to their focus on broader diversification.

The models have been performing well of late. The most recent large cap signal produced a gain of about 3% compared to declines of 3% for mid cap and 4% for small cap while the signal was in place. The current growth signal from the Style model went into effect at the start of May. Since that time, our investment in the Russell 1000 Growth (IWF) has gained 13% vs. 6% for the Russell 1000 Value (IWD).

Despite recent leadership for large cap growth, breadth has been good since the market lows following the Liberation Day tariff announcements. Mid cap, small cap, and emerging markets each rallied about 10% during May and June, similar to the 11% gain for the S&P 500. The S&P 500 return is higher due to the heavy weight of growth stocks, which have been leading the stock market rally as evidenced by a gain of 16% for the NASDAQ in the last two months. Northlake’s sees good breadth as important if the market is going to continue the current rally.