Factor Lab Daily Brief 2026-07-16
Momentum dominates with IC 0.224, ICIR 2.70, 100% hit rate; Tech sector momentum IC hits 0.524 with Q5 21-day return of 27.2%. Value factors universally failing β EP, FCF Yield, ROE all show significant negative IC. Health Care is the only sector with momentum reversal.
Market Style Overview
July 16, 2026 β US equity factor landscape shows extreme polarization: momentum reigns supreme, value factors are in full retreat.
| Factor | IC Mean | ICIR | IC Hit Rate | Long-Short Spread | Signal |
|---|---|---|---|---|---|
| Momentum (MOM) | 0.224 | 2.70 | 100.0% | -8.07% | π’ Very Strong |
| Volatility (VOL) | 0.132 | 1.05 | 79.5% | -7.61% | π’ Strong |
| Size (SIZE) | 0.048 | 1.25 | 87.2% | -2.06% | π’ Moderate |
| Book-to-Price (BP) | 0.006 | 0.08 | 46.2% | 0.82% | βͺ Neutral |
| ROE | -0.041 | -1.23 | 12.8% | 1.11% | π΄ Negative |
| FCF Yield | -0.059 | -1.43 | 7.7% | 3.04% | π΄ Significantly Negative |
| Earnings Yield (EP) | -0.062 | -0.74 | 17.9% | 3.87% | π΄ Negative |
Factor IC Analysis
π’ Momentum (MOM) β The Undisputed King
- IC mean 0.224, ICIR 2.70 (highest among all factors), hit rate 100.0%
- Q5 (high momentum) 21-day return 7.95%, Q1 (low momentum) -0.12%
- Long-short spread -8.07%, direction consistent and magnitude substantial
- 39 consecutive periods with positive IC β this is structural, not noise
π’ Volatility (VOL) β Risk Appetite Signal
- IC mean 0.132, ICIR 1.05, hit rate 79.5%
- Q5 (high vol) return 8.15% vs Q1 (low vol) 0.54%
- The market is rewarding risk-takers β high-beta, high-volatility names outperforming low-vol defensives
- Classic risk-on characteristic, consistent with momentum dominance
π’ Size (SIZE) β Large Cap Preference
- IC mean 0.048, ICIR 1.25, hit rate 87.2%
- Q5 (large cap) return 4.51% vs Q1 (small cap) 2.45%
- Large caps systematically outperforming small caps, capital concentrating toward mega-caps
π΄ Value Factors β Collective Failure
EP (Earnings Yield): IC -0.062, hit rate only 17.9%. Cheap stocks keep getting cheaper.
FCF Yield: IC -0.059, ICIR -1.43, hit rate 7.7%. The strongest anti-value signal β the market is systematically punishing high free-cash-flow companies while rewarding growth-at-any-cost narratives.
ROE: IC -0.041, ICIR -1.23, hit rate 12.8%. Profitability does not equal stock performance right now.
BP (Book-to-Price): IC 0.006, essentially zero. The only value factor not actively hurting, but contributing nothing either.
π Three out of four value factors are negative, one is flat. This is a textbook growth/momentum-driven market. When FCF Yield’s ICIR hits -1.43, the market is systematically rejecting “cheap.”
Sector Momentum Decomposition
Momentum effects vary dramatically across sectors β Tech stands alone at the top, Health Care reverses hard.
| Sector | IC Mean | ICIR | Hit Rate | Q1 Return | Q5 Return | L/S Spread |
|---|---|---|---|---|---|---|
| Info Tech | 0.524 | 2.58 | 100% | -1.35% | 27.19% | -28.54% |
| Financials | 0.309 | 2.63 | 100% | 0.61% | 7.80% | -7.19% |
| Industrials | 0.266 | 2.88 | 100% | -1.63% | 5.51% | -7.14% |
| Cons. Disc. | 0.252 | 2.11 | 100% | -4.05% | 2.15% | -6.21% |
| Cons. Staples | 0.209 | 1.34 | 87% | -4.65% | 0.02% | -4.67% |
| Utilities | 0.199 | 1.01 | 77% | -2.29% | -1.66% | -0.63% |
| Real Estate | 0.124 | 0.84 | 74% | 1.12% | 4.95% | -3.83% |
| Health Care | -0.128 | -1.21 | 15% | 4.84% | -2.66% | +7.51% |
Key Findings
Information Technology: Momentum IC of 0.524 is 2.3x the market-wide IC (0.224). Q5 portfolio 21-day return of 27.19%, Q1 at -1.35%. Long-short spread of -28.54% β going long the strongest tech names and short the weakest would have generated nearly 29 percentage points of spread in 21 days. Across 73 tech stocks, all 39 IC periods are positive.
Financials: ICIR of 2.63 is the highest across all sectors, indicating the most stable signal. Q5 return 7.80%, 76 financial stocks with 100% momentum hit rate. Banks, insurers, and asset managers all benefiting from the rate environment.
Industrials: ICIR 2.88, 79 stocks at 100% hit rate. Q5 return 5.51%, trend is solid.
Health Care: The only reversal sector. IC -0.128, hit rate just 15.4%. Q1 (low momentum) return 4.84%, Q5 (high momentum) -2.66%. Previously strong healthcare names are pulling back while beaten-down names bounce β classic mean reversion.
Strategy Implications
Momentum is the optimal strategy right now: Market-wide momentum IC at 100% hit rate. Do not fight the trend. Ride winners, don’t rush to bottom-fish weak names.
Avoid value factors: Negative IC on FCF Yield and ROE means buying cheap is losing money. Wait for value IC to turn positive before considering a style switch.
Tech is the strongest lane: Tech sector momentum effects far exceed other sectors. Q5 portfolio 27% 21-day return signals extreme capital concentration. But be aware of concentration risk.
Health Care suits mean-reversion plays: The only sector where momentum fails. Look for oversold bounce opportunities in healthcare rather than chasing strength.
Large cap > Small cap: Positive SIZE factor IC confirms capital preference for mega-caps. Small caps lack catalysts in the current environment.
Risk-On confirmed: High vol beating low vol, high momentum beating low momentum, large caps beating small caps β three signals in alignment confirm a risk-on regime.
Source: Factor Lab v2.0, based on S&P 500 constituents with daily TTM financial panels, 21-day holding period, 39-period IC series. Generated 2026-07-16 06:48 CST.