By Spencer Jakab

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What do companies like nLight, Aeva Tech and Ouster have in common?

Aside from snazzy-sounding names, they are among the 10 unprofitable U.S. companies whose shares were up by at least 200% since the current rally began on April 9. Few money-making ones have done so well.

Analysts at Bespoke Investment note that the 858 money-losing companies in the Russell 3000 rallied by 36% on average through Friday. By contrast the 500 stocks in that broad index with the lowest price-to-earnings ratios were up by 16% on average.

Is that necessarily bad? When markets hit big inflection points, such as President Trump's April decision to postpone many tariffs, there is normally an exaggerated, worst-to-first trend.

Stocks with heavy short interest-bets they will fall that use borrowed shares-are especially prone to face-ripping gains as such trades get unwound. Those mainly low-quality, unprofitable companies can have surprising momentum, even after the initial buying pressure is over.

That is especially the case when the selloff is brief, as the one from February through early April was. Retail speculators who buy the dip in junky assets feel like geniuses.

A similar pattern after the short, sharp Covid-19 bear market defied predictions. A basket of unprofitable tech companies tracked by Goldman Sachs jumped fivefold in less than a year. Overall, U.S. stocks kept rising until the Federal Reserve began lifting rates from zero in March 2022, two years after the market trough. Millions of mostly younger investors opened brokerage accounts to join the fun.

It may not last nearly as long this time. Note the differences: There hasn't been a wave of fiscal and monetary stimulus-just the avoidance of a bad thing. The post-April 9 relief rally already assumes three rate cuts this year and the continuation, in some form, of the 2017 tax rules.

Stocks have quickly regained their highs, and also some historically bubbly characteristics. Analysts at Kailash Concepts point out that $16 trillion worth of U.S. companies fetched more than 10 times sales last week-an almost impossible multiple to justify. As a percentage of the entire market, that is similar to the tech-bubble peak 25 years ago.

The exuberance is spreading from AI-driven stocks to the broad market. But should it? Analysts at Leuthold contrast that with the U.S. economy's "pre-recessionary" signals. "The 'bad news is good news' narrative is not an uncommon one in a late-stage bull market," they say.

Valuation looks "late stage" too. The Shiller P/E ratio-a reliable long-term gauge-is pricier than it has been all but 4% of the time.

A standout performance from speculative stocks isn't always a reason to be cautious. It might be now.

This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).

(END) Dow Jones Newswires

July 01, 2025 06:52 ET (10:52 GMT)

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