By Joseph Adinolfi
Markets can stay frothy for longer than many might expect. But when the crash comes, it could be painful.
In the U.S. stock market in 2025, a company’s ability to reliably generate profits has been taking a back seat to its ability to tell a good story.
Of the 10 stocks in the Russell 3000 index RUA with the biggest year-to-date gains, many of the companies have one ominous thing in common: a spotty or nonexistent record of generating profit.
Take Aeva Technologies Inc. (AEVA). The stock was up more than 500% through Thursday’s close, making it the top performer in the U.S. broad-market index. Yet the company reported losses for the last four consecutive quarters, FactSet data showed. The 10th best stock, OptimizeRx Corp. (OPRX), saw its market value nearly triple this year, despite reporting losses in three of the past four quarters.
“A little bit of price momentum with a good story has been well rewarded in this market,” said Matt Stucky, chief portfolio manager in charge of equities at Northwestern Mutual Wealth Management.
Of the 50 Russell 3000 stocks that tallied the biggest gains year to date, 45 reported at least one loss during the past four fiscal quarters, according to a MarketWatch analysis of FactSet data.
Many investors have been betting this will change, focusing on a company’s potential, rather than where it stands today.
But as Stucky and others point out, while so-called fundamentals, such as sales and profit, can sometimes be set aside for short periods, over the long term, stocks rarely succeed without them.
“Fundamentals matter in the long run, but in the short run, they’re meaningless,” said Dennis Dick, chief strategist at Stock Trader Network, during an interview with MarketWatch. “And when you’re in these really speculative markets, fundamentals don’t matter at all.”
Depending how long it takes such companies to start operating in the black, investors could face a painful reckoning if the earnings they’re expecting arrive late.
2021 vibes
Whether profitable or not, all of this year’s big winners in the stock market have benefited from a powerful momentum trade that, to many investors, seems unstoppable.
The momentum trade involves betting on stocks that are already performing well. And while it has hit a bit of a hiccup in early July, previous weak patches this year have been quickly papered over as stocks charged higher. After the April selloff that sent the S&P 500 index SPX skidding to the edge of bear-market territory, the momentum trade bounced back even stronger than before.
Some of this year’s big momentum names have already demonstrated the ability to boost their profits more quickly than Wall Street had expected. Shares of Robinhood Markets Inc. (HOOD), Palantir Technologies Inc. (PLTR) and Carvana Co. (CVNA) have risen 165%, 88% and 70%, respectively, in 2025, FactSet data showed. Shares of all three companies also tallied huge gains in 2024.
The iShares Edge MSCI USA Momentum Factor ETF MTUM, the biggest momentum exchange-traded fund, has risen by roughly 15%.
The S&P 500, by comparison, has gained more than 7% this year, while the Russell 3000 has returned nearly as much. All investment returns in this article include reinvested dividends and are accurate through July 10.
Even some beaten-down value names were having a moment: Shares of car-rental firms Avis Budget Group Inc. (CAR) were up 135%, and CVS Health Corp.’s stock (CVS) was 50% higher.
Company Ticker 2025 total return through July 10 Aeva Technologies Inc. AEVA 515% ThredUp Inc. Class A TDUP 391% Sezzle Inc. SEZL 249% Digital Turbine Inc. APPS 220% ProKidney Corp. PROK 207% Centrus Energy Corp. LEU 196% Groupon Inc. GRPN 192% MP Materials Corp. MP 190% fuboTV Inc. FUBO 175% OptimizeRx Corp. OPRX 173% Source: FactSet
To some, the action in this corner of the market resembles the frenzied trading that took place during the pandemic, when trendy stocks like Peloton Interactive Inc. (PTON) and Zoom Communications Inc. (ZM) briefly boomed before saddling investors with huge losses. Some darlings of that period recovered and even thrived – Palantir and Carvana are two such examples – while others weren’t so lucky.
“It’s definitely got a bit of that 2021 vibe,” Ben McMillan, chief investment officer at IDX Advisors, said during a conversation with MarketWatch.
That episode culminated with the meme-stock mania that peaked in early 2021.
Yet Joseph Saluzzi, co-founder of Themis Trading, sees some important differences between now and then. During the meme-stock craze, investors gravitated toward nostalgia and companies that already appeared to be past their prime – such as GameStop Corp. (GME), AMC Entertainment Holdings Inc. (AMC) and BlackBerry Ltd. (BB). Instead of focusing on their business prospects, investors took aim at heavily shorted companies, hoping to provoke what is known as a short squeeze.
A short squeeze happens when the price of a heavily shorted stock spikes, forcing some of the investors betting against it to buy back the shares to meet margin calls, driving the price higher still.
“The meme stuff was really just ridiculous,” Saluzzi said. “What’s going on today isn’t really the same.”
This time around, investors are betting on what Saluzzi called “story” stocks. Whether it’s self-driving cars, nuclear power, quantum computing, artificial intelligence, or something else entirely, stocks that can stake a claim to some emerging trend or technology appear to have an advantage in this market.
What will end it?
As for when it might end, Saluzzi warned that speculative markets can persist for longer than many might expect, and it can be impossible to tell ahead of time what could bring them down.
Last time around, it was the Federal Reserve’s aggressive interest-rate hikes that finally put an end to the stock market’s party in early 2022. This time, higher borrowing costs haven’t done much to rein in speculation, as interest rates remain far higher than they were a few years ago.
Social-media platforms like Reddit Inc. (RDDT) and X also have helped popularize many of these stocks, said Dick at Stock Trader Network. Many high-quality companies like Nvidia Corp. (NVDA) also thrived in 2025, and Dick thinks Nvidia’s success has inspired investors to try their hand at investing in the next big thing.
Although plenty of academic research has shown that momentum trading can deliver outsize returns over time, in the short term, it can be prone to big selloffs, Stucky said.
While some of these companies might over time prove to be thriving businesses, investors may need to hang on through some truly stomach-churning volatility to get to that point. And inevitably, some companies won’t make it.
“It’s really hard to put a price on a dream,” Stucky said.
McMillan at IDX Advisors worries the trade could run into some trouble if the U.S. labor market continues to slow, and the pace of economic growth along with it. The bond markets also could rebel at the deficit spending included in the Republican megabill signed last week by President Donald Trump.
McMillan also was seeing signs that suggest froth in this market is starting to attract even more aggressive speculation. He pointed to the return of special-purpose acquisition vehicles as an example. Many SPACs flourished during the pandemic before falling hard in the ensuing bust as rates increased.
The proliferation of so-called bitcoin treasury companies – which aim to essentially to copy Strategy Inc.’s (MSTR) model of holding tons of bitcoin on its balance sheet – is another example.
“This train could keep running easily into next year, but the bill is going to come due at some point. The resilience of gold (GC00) and long-bond rates backing up are signs that there are cracks under the hood,” McMillan said.
Philip van Doorn contributed.
-Joseph Adinolfi
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07-12-25 0730ET
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