There are no changes to Northlake’s models for March. The Market-Cap model is recommending small-cap companies for the second consecutive month. The Style model continues to favor growth, as it has since August 2011. With no changes this month, Northlake client assets invested in the models will continue to own the Russell 2000 (NYSEARCA:IWM)) and Russell 1000 Growth (NYSEARCA:IWF).
As mentioned in last month’s update, when the models shift off long-running signals, there is often several months of volatility in the recommendations. The Market-Cap model did stay on small cap for a second month. However, the indicators underlying the model show a weaker small-cap signal. The bond momentum and trend indicators each shifted away from a small-cap reading. Bond momentum measures the recent trend in interest rates. Although rates have not gone up over the last several months, the steady downtrend in rates has ceased. Small caps perform best is falling interest rate environments, so the indicator shifted away. The trend indicator is now in neutral mode after favoring small caps last month. This indicator measures very recent relative performance of small stocks vs. large stocks. As discussed further below, small caps lagged February’s rally so this indicator is neutral mode. Based on the current condition of the Market-Cap model indicators, the model could very well shift back to mid caps next month.
The Style model saw a strengthening of its growth signal for March driven mostly by a shift in trend indicator that reflects the recent strong performance of growth stocks. The growth signal is very likely to remain in place for at least another month or two given the currently strong reading in favor of growth stocks. With technology stocks back in a leadership role for the market, a growth signal is a comfortable place to be.
Last month, the models put in a mixed performance. The new small-cap signal trailed the market the S&P 500 (NYSEARCA:SPY) by a little over 1%. Fortunately, this was offset by above-average performance for the growth signal. On a year-to-date basis, both models are running comfortably ahead of the S&P 500.Models