I received the latest monthly updates Sunday night from Northlake’s Market Cap and Style models. The Market Cap model continues to flash a very strong signal in favor of large caps. My data goes back to 1980 and the strength of the large signal is in the top 5% of all monthly readings. The Style model is now flashing a growth signal following a five month run in favor of value.
As a result, yesterday I sold all client positions in the Russell 1000 Value ETF (IWD) and moved it to the Russell 1000 Growth ETF (IWF)…..

The style model has been pretty evenly split for much of the last year sending either a weak growth or weak value reading. The shift this month is reflecting recently improved relative performance of growth stocks picked up by the model’s technical indicators. As a reminder, the technical indicators are designed to make the models more timely since most of the underlying indicators measuring economic growth and interest rates are longer term in nature.
In general, I see the message from the underlying factors in the models reflecting a slowdown in economic growth. This is an environment where it pays to take less risk (large caps over small caps) and seek out companies that are less sensitive to economic activity (growth over value).
The latest value signal form the style model proved to be less than perfect. During the five month period it was in place, the Russell 1000 Growth ETF rose 4.5% while the Russell 1000 Value ETF gained 3.6%. On the other hand, the large cap signal that is now in place for the sixth consecutive month has been a pretty good call. During this period large caps as measured by the S&P 500 have gained 4.7% vs. small caps at 4.6% as measured by the Russell 2000. Performance parity may not be anything to get excited about but in a strongly uptrending stock market environment, small caps typically outperform. As a result, I think the market model has allowed client to earn the generally available return in the stock market at a lower level of risk.