Factor Lab Daily Brief 2026-07-13
Momentum dominates with ICIR 2.70, value factors deeply negative, Info Tech leads all sectors with 0.524 IC
Factor IC Summary
Rolling window: 39 periods (~2 months), 503 US stocks (incl. financials)
| Factor | IC Mean | ICIR | IC Pos% | L/S Return | t-stat | Signal |
|---|---|---|---|---|---|---|
| EP (Earnings Yield) | -0.062 | -0.74 | 17.9% | +3.87% | -4.57 | π΄ Inverse |
| BP (Book-to-Price) | +0.006 | +0.08 | 46.2% | +0.82% | +0.48 | βͺ Flat |
| FCF Yield | -0.059 | -1.43 | 7.7% | +3.04% | -8.79 | π΄ Strong Inverse |
| ROE | -0.041 | -1.23 | 12.8% | +1.11% | -7.58 | π΄ Inverse |
| Momentum | +0.224 | +2.70 | 100.0% | -8.07% | +16.62 | π’ Extreme |
| Volatility | +0.132 | +1.05 | 79.5% | -7.61% | +6.48 | π’ Strong |
| Size | +0.048 | +1.25 | 87.2% | -2.06% | +7.70 | π’ Positive |
Factor Commentary
- Momentum: ICIR 2.70 is at the highest level in recent history. 100% positive hit rate means winners kept winning in every single period. Q5 (top momentum) averaged +7.95% vs Q1 -0.12%. This is momentum eating everything.
- Value Trio (EP/BP/FCF Yield): Complete failure. FCF Yield ICIR -1.43 with p-value at zero β cheap stocks keep getting cheaper. Classic “don’t catch a falling knife” signal.
- Volatility: Positive and significant (ICIR 1.05). High-vol stocks outperforming low-vol β textbook risk-on environment.
- Size: Small-cap premium returning (ICIR 1.25), though large caps still lead in absolute returns (Q5 +4.51% vs Q1 +2.45%).
Sector Momentum Decomposition
By GICS sector, momentum factor within each sector
| Sector | IC Mean | ICIR | IC Pos% | Verdict |
|---|---|---|---|---|
| Info Tech | +0.524 | +2.58 | 100.0% | π’ King |
| Financials | +0.309 | +2.63 | 100.0% | π’ Extreme |
| Industrials | +0.266 | +2.88 | 100.0% | π’ Extreme |
| Consumer Discretionary | +0.252 | +2.11 | 100.0% | π’ Strong |
| Consumer Staples | +0.209 | +1.34 | 87.2% | π’ Moderate |
| Utilities | +0.199 | +1.01 | 76.9% | π‘ Mild |
| Real Estate | +0.124 | +0.84 | 74.4% | π‘ Mild |
| Health Care | -0.128 | -1.21 | 15.4% | π΄ Anti-Momentum |
Sector Commentary
- Info Tech stands alone β IC of 0.524 means past winners are crushing losers, with Q5 averaging +27.19%. AI narrative continues to drive concentrated capital flows.
- Financials & Industrials close behind with ICIR >2.6, indicating highly efficient momentum stock selection.
- Health Care is the sole anti-momentum sector β past winners are falling while losers are rising (Q1 +4.84%, Q5 -2.66%). Likely driven by policy uncertainty (IRA drug pricing, FDA approval cycles).
- Consumer Staples & Utilities, as defensive sectors, show milder but still positive momentum effects.
Overall Assessment
- Regime: Strong risk-on + high momentum concentration. Market rewards chasing strength, punishes bargain hunting.
- Style Preference: Momentum > Small Cap > Low Vol. Value strategies are dead in the water β don’t fight the tape.
- Risk Alert: 100% momentum hit rate is itself a “froth” signal β historically this level often precedes short-term pullbacks. However, ICIR at 2.70 suggests the trend is far from exhausted.