Stability in Models Amid Improved but Volatile Breadth

Northlake’s Market Cap and Style models remain neutral on growth vs. value and favor mid cap for October. This means client portfolios using our model strategy will continue to own the S&P 400 Mid Cap (MDY), the Russell 1000 Growth (IWF), and the Russell 1000 Value (IWD) at least through October. Client accounts using Thematic strategies will continue to be widely diversified across market cap, style, and global themes.

September saw the Mag 7 and Artificial Intelligence stocks reassert market leadership. This continued a recent pattern of improved but volatile breadth. For the entire third quarter, in a very bullish environment for stocks, Small Caps and the NASDAQ were the best performing themes. This is a very unusual combination given the NASDAQ is dominated by the Mag 7 & and other technology growth leaders, while small caps are considered cyclical.
International stocks continue to perform well, another sign of improved breadth and a shift from recent history. Year-to-date, the MSCI All World Ex US index is up almost 27%, nearly twice the return of the S&P 500. The US dollar remains weak due to policy domestic uncertainty and shifting global alliances. Now that the Fed is joining the majority of global central banks in easing monetary policy, the dollar downtrend should be intact, further helping the relative performance of international stocks.

Overall, the stock market environment remains difficult to forecast with volatility in themes and uncertainty in domestic politics and policy, geopolitics, and the economic outlook even as the market and economy show resilience. We prefer a diversified approach with moderate cash reserves over the balance of 2025.

MDY, IWF, and IWD 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.