There were no changes to the signals from Northlake’s Market Cap and Style models for November. Large cap and growth remain favored over small/mid cap and value. There was some shift in favor of small/mid cap and value in the underlying indicators, however. I think the large cap growth trend is likely to stay in place for several more quarters but a temporary shift toward small cap and value would not surprising given the outperformance for large cap and growth over the past several months. Since the July 19th S&P 500 high, the S&P 500 is down just 3% compared to a fall of over 6% for the Russell 2000 and a 4% decline for the S&P 400 Mid Cap. In the style arena, the model shifted from value to growth on June 1. Since that time, the Russell 1000 Growth ETF is up 5%, while the Russell 1000 Value ETF is down almost 5%! That is basically technology stocks over financial stocks.
In the Market Cap model for August, all ten indicators were flashing growth. Four of the ten indicators now favor small cap. The shift has occurred in indicators which consider the shape of the yield curve, sentiment, breadth, and consumer confidence. In general, the indicators are picking up extreme readings that suggest a reversal could be at hand. This contrarian call would favor small caps.
The Style model is also drifting away from its long standing signal. In this case, the severely lagging performance of value over the past few months is driving a weakening of the growth signal.
I’d be surprised if either model moves enough this month to flash a new signal for December. January, on the other hand could see a shift to mid cap and value if current trends continue. If and when the signals change, I’ll happily follow along. No reason to use a model like this if you are going to second guess it and neither model has given me any reason to second guess for the last three years.
As always thanks to Ned Davis Research for the initial development and ongoing maintenance of these models.