Factor Lab Daily Report 2026-07-05
Momentum dominates with ICIR 2.70; all value factors under pressure; Info Tech and Industrials lead sector momentum; Health Care shows reversal
Factor IC Test (39 rolling windows, ~503 US stocks)
| Factor | IC Mean | ICIR | IC t-stat | L/S Return | Signal |
|---|---|---|---|---|---|
| Momentum (MOM) | 0.224 | 2.70 | 16.62 | -8.07% | π’ Strong Positive |
| Volatility (VOL) | 0.132 | 1.05 | 6.48 | -7.61% | π’ Positive |
| Size (SIZE) | 0.048 | 1.25 | 7.70 | -2.06% | π’ Positive |
| Book-to-Price (BP) | 0.006 | 0.08 | 0.48 | 0.82% | βͺ Insignificant |
| Earnings Yield (EP) | -0.062 | -0.74 | -4.57 | 3.87% | π΄ Significant Inverse |
| FCF Yield | -0.059 | -1.43 | -8.79 | 3.04% | π΄ Significant Inverse |
| ROE | -0.041 | -1.23 | -7.58 | 1.11% | π΄ Significant Inverse |
Key Findings
- Momentum stands alone: MOM factor ICIR 2.70, 100% positive IC rate. Q5 avg return 7.95% vs Q1 -0.12%. Over 39 rolling windows, momentum has never failed β the most reliable alpha source in current markets.
- Value factors under siege: EP, FCF Yield, and ROE all show significantly negative ICs. FCF Yield ICIR -1.43 is the weakest factor β low-FCF growth stocks consistently outperform high-FCF value plays.
- High vol > Low vol: VOL factor IC mean 0.132. High-volatility Q5 returned 8.15% vs low-vol Q1 at 0.54%. The market is chasing beta.
- Large-cap premium: SIZE factor ICIR 1.25, large caps continue outperforming small caps.
Sector Momentum Decomposition (mom factor Γ GICS sectors)
| Sector | IC Mean | ICIR | IC Pos. Rate | Q5-Q1 Spread |
|---|---|---|---|---|
| Info Tech | 0.524 | 2.58 | 100% | -28.54% |
| Industrials | 0.266 | 2.88 | 100% | -7.14% |
| Financials | 0.309 | 2.63 | 100% | -7.19% |
| Consumer Discretionary | 0.252 | 2.11 | 100% | -6.21% |
| Consumer Staples | 0.209 | 1.34 | 87% | -4.67% |
| Utilities | 0.199 | 1.01 | 77% | -0.63% |
| Real Estate | 0.124 | 0.84 | 74% | -3.83% |
| Health Care | -0.128 | -1.21 | 15% | +7.51% |
Sector Insights
- Info Tech shows the strongest momentum with IC mean 0.524. Q5 returned 27.19% vs Q1 -1.35%, a -28.54% spread. AI-related names continue dominating capital flows.
- Industrials and Financials show robust momentum with ICIR above 2.6, Q5 significantly outperforming.
- Health Care reversal: the only sector with negative IC (ICIR -1.21). Past winners (Q5) returned -2.66% while past losers (Q1) bounced +4.84%. Capital is rotating out of defensive healthcare into cyclicals/tech.
Summary
Market style is extremely skewed toward momentum + growth + large-cap. Value factors are universally failing β a classic “trending market” rather than “mean-reversion market.” Info Tech and Financials are the momentum battlegrounds; Health Care shows clear capital rotation signals. Strategy-wise, ride the trend rather than fading into value.
Based on daily TTM financial panels covering S&P 500 constituents. 39 rolling windows β 2 months of trading days.