By Jack Pitcher
Forget the Magnificent Seven. Investors are now learning to love the Unprofitable 858.
Meme stocks and money-losing companies are now back in favor, and underpinning a rally that has lifted the market to records.
Of the 14 companies in the Russell 3000 index that have more than tripled since April 8, when the market bottomed out, 10 don't generate any profits, according to analysts at Bespoke Investment Group. And through late June, the 858 Russell 3000 stocks with no earnings have since posted average gains of 36%, outperforming their profitable peers.
Stocks such as Avis Budget Group, Carvana and Aeva Technologies are flying high, a sign investors have reacquired a taste for speculation. It also reminds some analysts of the meme-stock era, when near-zero interest rates and other government stimuli juiced a market rally.
"We're not yet seeing a full-fledged 'flight-to-crap,' but it is clear that the motivation behind many of these stocks' activity is something other than disciplined considerations of discounted cash flows," said Steve Sosnick, chief strategist at Interactive Brokers.
Case in point: A Goldman Sachs index of retail traders' favorite stocks just set its first record since November 2021, the previous peak for many speculative bets before they wilted under the strain of higher rates.
At trading platform Interactive Brokers, the recent list of clients' most-traded stocks is littered with names such as Cyngn, a self-driving industrial vehicle maker with volatile shares, almost no sales and market capitalization of less than $100 million. Cyngn shares have nearly tripled in three months but are still down almost 90% year to date.
Some of the biggest recent winners include Avis, the car-rental company that first joined the ranks of retail-favorite meme stocks during the pandemic. Its shares have soared 188% since April 8. Another Covid-era favorite, the used-car dealer Carvana, is up 98% over the same period.
Aeva, which develops lidar sensors for self-driving cars, is up 457% since the market's April bottom.
The speculative rally has been part of a recent broadening beyond just the big tech shares that have driven the bulk of market gains this year. It isn't necessarily surprising to see parts of the market that had been hit hardest during a downturn also outperform on the way back up, analysts say, but longer periods of froth can often end poorly.
"If you do see that low-quality, speculative part of the market lead for an extended period, it can be concerning," said Kevin Gordon, senior investment strategist at Charles Schwab. "But it's also part and parcel of what has been the theme for retail investors over the past couple of years. They've been conditioned to buy the dip and not look back, and for the most part that's been a sound strategy for them."
Bullish sentiment across the board has been driven by optimism that the Trump administration will take a milder stance than feared on trade, easing concerns about both the economy and inflation.
Resilient economic data have repeatedly surprised analysts. On Thursday, the June payrolls report showed that U.S. job growth continued at a steady pace, while the unemployment rate fell to 4.1% from 4.2%. Economists polled by The Wall Street Journal had been expecting it to tick higher instead.
It was the latest data point to back up the goldilocks scenario that investors have been betting on for the second half of the year, in which strong growth, low inflation and interest-rate cuts buoy markets. The S&P 500 and Nasdaq composite both closed at record highs Thursday ahead of the holiday weekend.
Suddenly, investors who were fearful a few months ago are only afraid that they might miss out on more gains. Just three months after individual investors were the most bearish they have been since 2009, the YOLO trade is back.
"When the attitude shifted to risk-on in the second quarter, it seems like the traditional players moved back into the Apples and Amazons and Microsofts of the world," said Art Hogan, chief market strategist at B. Riley Wealth Management. "And now you've got the cohort of the ultra-risky, 'you only live once' gang rushing back into their selection of equities."
Bold dip-buyers have reaped big rewards this year. Investors flocked to leveraged exchange-traded funds that amplify returns in early April, including the largest such fund, Invesco's ProShares UltraPro QQQ, which reported record daily inflows in early April. The fund, which aims to triple the daily return of the Nasdaq-100 index, is up more than 100% since April 8.
Speculative bets might be paying off spectacularly now, but the good times usually don't last very long, warned ClearBridge Investments senior investment strategy analyst Josh Jamner.
"While some of this speculative stuff can go on huge runs, in the long run, the vast majority of stock returns come back to earnings," Jamner said. "Investors need to keep that in mind."
Write to Jack Pitcher at jack.pitcher@wsj.com
(END) Dow Jones Newswires
ProShares manages the UltraPro QQQ exchange-traded fund. "Meme Stocks and YOLO Bets Are Back and Fueling the Market's Rally," at 10 p.m. ET on July 5, incorrectly said that Invesco also runs the fund.
(END) Dow Jones Newswires
July 06, 2025 11:40 ET (15:40 GMT)
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