A two-factor model explains returns for a variety of test portfolios, including those based of CAPM beta and those underlying factors in extant pricing models. The two-factor model involves the market factor and a factor based on firms’ fundamentals that has the feature of providing a hedge in down markets and a reverse-hedge in up markets. For a wide range of test portfolios, returns are described by sensitivity to the market factor with a beta of one and positions in the hedging factor. Fundamentals underlying the hedging factor appear to convey firms’ sensitivity to information that forecasts investment-consumption opportunities. Thus the paper provides a two-factor representation of the intertemporal asset pricing model (ICAPM).