Factor Lab Daily Report 2026-08-16
August 16, 2026 (Saturday) Factor Lab daily factor testing report. Momentum factor ICIR 2.70 continues to dominate the broad market; Information Technology sector momentum ICIR 2.58 with Q5 monthly return +27.19% showing extreme dispersion; FCF Yield factor ICIR -1.43 is the strongest value signal; EP factor ICIR -0.74 with persistent reversal; BP factor ineffective ICIR only 0.08; Health Care sector momentum reversal ICIR -1.21. Weekend data unchanged from last trading day; TTM financial panel in mid-quarter quiet period.
Factor IC Testing
This report presents 7-factor IC testing on S&P 500 constituents, with a 21-trading-day holding period and 39 cross-sectional observations.
| Factor | IC Mean | ICIR | t-stat | p-value | IC Positive % | Long-Short (Monthly) |
|---|---|---|---|---|---|---|
| EP (Earnings Yield) | -0.0624 | -0.74 ⭐ | -4.57 ⭐ | 0.00005 ⭐ | 17.9% | +3.87% |
| BP (Book-to-Price) | +0.0056 | +0.08 | +0.48 | 0.6355 | 46.2% | +0.82% |
| FCF Yield (Free Cash Flow Yield) | -0.0589 | -1.43 ⭐ | -8.79 ⭐ | 0.00000 ⭐ | 7.7% | +3.04% |
| ROE (Return on Equity) | -0.0414 | -1.23 ⭐ | -7.58 ⭐ | 0.00000 ⭐ | 12.8% | +1.11% |
| Mom (12-1M Momentum) | +0.2241 | +2.70 ⭐ | +16.62 ⭐ | 0.00000 ⭐ | 100.0% | -8.07% |
| Vol (60D Volatility) | +0.1320 | +1.05 ⭐ | +6.48 ⭐ | 0.00000 ⭐ | 79.5% | -7.61% |
| Size (Market Cap) | +0.0479 | +1.25 ⭐ | +7.70 ⭐ | 0.00000 ⭐ | 87.2% | -2.06% |
Key Takeaways:
- Momentum factor continues to dominate: ICIR 2.70, IC positive ratio 100%, positive contribution across all cross-sectional periods. Q5 (high momentum) monthly return +7.95%, Q1 (low momentum) -0.12%, long-short spread -8.07% (negative value means high momentum outperforms low momentum). Momentum effect is extremely significant in the current market environment; trend-following strategies remain effective.
- EP factor reversal effect persists: ICIR -0.74, negative IC indicates high earnings yield stocks recently outperformed low earnings yield stocks, consistent with growth-to-value rotation. Q1 monthly return +6.41% far exceeds Q4’s +0.61%.
- FCF Yield is the strongest value signal: ICIR -1.43, t-stat -8.79, extremely high significance. High free cash flow yield stocks systematically outperform, Q1 monthly +5.64% vs Q3’s +0.19%. IC positive ratio only 7.7%, meaning nearly every cross-sectional period points in the same direction.
- BP factor completely ineffective: ICIR only 0.08, p-value 0.64, cannot reject null hypothesis. Book-to-price has no predictive power for returns; the increasing share of intangible assets in the economy diminishes the relevance of traditional book value metrics.
- Volatility factor: ICIR +1.05, positive IC means high volatility stocks have higher returns, potentially reflecting risk premium. Q5 monthly +8.15% vs Q1’s +0.54%.
- Size factor: ICIR +1.25, IC positive ratio 87.2%, large-cap stocks slightly outperforming recently but the effect is not strong.
- Quality factor (ROE) reversal: ICIR -1.23, low ROE stocks recently outperform high ROE stocks, possibly reflecting speculative capital flowing into lower-quality names.
Sector Momentum Decomposition
Decomposing the momentum factor by GICS sectors to examine differential momentum effects within each sector. Communication Services, Energy, and Materials excluded due to fewer than 30 samples.
| Sector | Sample Size | IC Mean | ICIR | IC Positive % | Q5 Monthly Return | Q1 Monthly Return | Long-Short (Monthly) |
|---|---|---|---|---|---|---|---|
| Consumer Discretionary | 48 | +0.2522 | +2.11 | 100% | +2.15% | -4.05% | -6.21% |
| Consumer Staples | 36 | +0.2088 | +1.34 | 87.2% | +0.02% | -4.65% | -4.67% |
| Financials | 76 | +0.3094 | +2.63 | 100% | +7.80% | +0.61% | -7.19% |
| Health Care | 59 | -0.1280 | -1.21 | 15.4% | -2.66% | +4.84% | +7.51% |
| Industrials | 79 | +0.2659 | +2.88 | 100% | +5.51% | -1.63% | -7.14% |
| Information Technology | 73 | +0.5240 | +2.58 | 100% | +27.19% | -1.35% | -28.54% |
| Real Estate | 31 | +0.1242 | +0.84 | 74.4% | +4.95% | +1.12% | -3.83% |
| Utilities | 31 | +0.1993 | +1.01 | 76.9% | -1.66% | -2.29% | -0.63% |
Sector Momentum Highlights:
- Information Technology extreme momentum: ICIR 2.58, IC mean 0.524, highest across all sectors. Q5 (high momentum) monthly return reaches +27.19%, Q1 (low momentum) only -1.35%, long-short spread -28.54%. The winner-takes-all pattern within tech is pronounced; momentum strategies yield the most extreme returns in this sector.
- Industrials strongest momentum: ICIR 2.88, highest across all sectors. IC positive ratio 100%, Q5 monthly +5.51% vs Q1’s -1.63%, momentum effect is uniform and persistent.
- Financials robust momentum: ICIR 2.63, IC positive ratio 100%. Q5 monthly +7.80%, momentum strategies perform strongly in financials.
- Health Care momentum reversal: ICIR -1.21, negative IC, the only sector with momentum reversal. Q1 (low momentum) monthly +4.84%, outperforming Q5 (high momentum) at -2.66%. Previously sold-off stocks show significant mean reversion; watch for sector rotation signals.
- Consumer Discretionary effective momentum: ICIR 2.11, IC positive ratio 100%, Q5 outperforms Q1 by approximately 6.21%.
- Consumer Staples weakening momentum: ICIR 1.34, but Q5 monthly only +0.02%, insufficient differentiation within the sector.
- Utilities weak momentum: ICIR 1.01, long-short spread only -0.63%, high homogeneity within the sector limits momentum effectiveness.
- Real Estate moderate momentum: ICIR 0.84, IC positive ratio 74.4%, momentum has some effect but not strong.
Summary
This period’s factor testing results show the market continues to exhibit a strong momentum-driven character, consistent with the recent pattern:
- Momentum factor broadly effective: ICIR 2.70, IC positive ratio 100%, currently the strongest factor; trend strategies remain effective.
- Value factor divergence: EP (ICIR -0.74) and FCF Yield (ICIR -1.43) show significant reversal effects, with high-valuation stocks facing recent correction pressure; BP is ineffective, as the intangible-asset-driven economic structure renders traditional book value metrics meaningless.
- Tech sector extreme dispersion: Information Technology ICIR 2.58, Q5 monthly return +27.19%, winner-takes-all dynamic within the sector is evident.
- Health Care contrarian reversal: The only sector with momentum reversal (ICIR -1.21); previously weak stocks are bouncing back; watch for sector rotation signals.
- Quality factor (ROE) reversal: ICIR -1.23, low ROE stocks recently outperform high ROE stocks; speculative capital may be flowing into lower-quality names.
Overall assessment: The market remains in a momentum-dominated strong trend phase. FCF Yield and EP among value factors still provide effective contrarian signals; BP has lost validity. At the sector level, pay particular attention to the extreme momentum in tech and the reversal signals in Health Care. All factors are within normal volatility ranges with no anomaly alerts triggered. The TTM financial panel is in the mid-quarter quiet period with no changes in factor data.