No Model Changes, But Subtle Shifts Beneath the Surface
There are no changes to the recommendations from Northlake’s Market Cap and Style models for May. As a result, for clients using our model strategies, current positions in the S&P 500 (SPY) and Russell 1000 Value (IWD) will be maintained for at least another month.
While the positioning remains unchanged, there were some notable developments beneath the surface in April that are worth highlighting, particularly within the Market Cap model.
Market Cap Model: Large Cap Signal Holds, But Small Cap Momentum Builds
The Market Cap model continues to recommend an overweight to large cap equities. This signal remains intact due to the model’s built-in smoothing process and the outsized relative strength exhibited by large cap stocks during the March market correction.
However, April introduced a modest shift worth noting. Small caps, as represented by the Russell 2000, reasserted leadership during the market rebound and showed improving relative strength. This move aligns with a broader backdrop of continued U.S. economic resilience, which has historically been more supportive of smaller, more domestically oriented companies.
The model is designed to avoid reacting to short-term fluctuations. As a result, the prior period of large cap outperformance continues to carry significant weight, keeping the overall recommendation firmly tilted toward large caps for now. Sustained small cap leadership, and continued resilience in the US economy over the coming months would be required to shift the model’s recommendation to mid or small cap.
Style Model: Value Leadership Remains Supported by Macro Backdrop
The Style model also remains unchanged for May, continuing to favor value over growth. Both internal and external indicators were stable on a month-to-month basis, reinforcing the existing signal.
The persistence of the value recommendation is tied closely to the current economic environment. Ongoing resilience in U.S. growth continues to support value sectors that tend to benefit from cyclical strength, including energy, industrials, and real estate. These areas have shown relative outperformance and remain key contributors to the model’s positioning.
At the same time, the absence of meaningful deterioration in economic data despite the impact of the war with Iran has limited the case for a shift back toward growth leadership. As a result, the model continues to reflect a balanced but clear preference for value that extends to thematic strategies that do not use our models, where portfolios continue to maintain exposure to value themes through core ETFs.
Year-to-Date Perspective: Models Performing as Intended
The Market Cap and Style models have contributed positively so far this year. The positioning has aligned well with the broader market environment, particularly the combination of large cap leadership and value-oriented sector strength.
Outside of the model-driven strategies, performance has been more mixed. Health care and financials have lagged year to date, while industrials have emerged as a leader, supported in part by ongoing demand tied to data center buildout and the associated need for increased electricity infrastructure.
Looking Ahead
As we move further into the second quarter, the key question for the Market Cap model will be whether April’s improvement in small caps develops into a sustained trend. For the Style model, the focus remains on the durability of economic growth and whether current sector leadership continues to hold. For now, the signals remain clear and unchanged.
Northlake Capital Management, LLC is a state-registered investment adviser. Registration does not imply a certain level of skill or training. Additional information about Northlake, including current registration status, is available through the SEC’s Investment Adviser Public Disclosure website. This material is for informational purposes only and is not investment advice or a recommendation to buy or sell any security. Investing involves risk, including possible loss of principal. Past performance does not guarantee future results. Northlake, its employees, and clients may hold positions in securities referenced. Opinions are as of the publication date and are subject to change without notice.
