Wall Street Shifts Focus to 858 Unprofitable Companies Gaining 36%

Wall Street has shifted its focus from the reliable tech giants, known as the Magnificent 7, to a group of 858 unprofitable companies in search of gains. This shift marks a significant change in investor sentiment, as the market's latest rally is being driven by companies that have no earnings and are considered high-risk investments.

Since April 8, when the market bottomed out, 10 out of the 14 stocks that tripled on the index have not made a single dollar of profit. This trend has continued through late June, with these 858 unprofitable companies delivering an average gain of 36%, outperforming their profitable peers. Notable companies riding this wave include Avis Budget Group, Carvana, and Aeva Technologies, which have seen significant gains since April.

This shift in investor behavior is not rooted in fundamentals but rather in a desire for thrill and potential gains. Traders are pouring into high-risk, low-revenue companies, such as Cyngn, a self-driving vehicle firm with a valuation under $100 million. Despite its poor performance year-to-date, Cyngn's stock has almost tripled in three months, indicating a change in investor sentiment towards these types of companies.

The pandemic-era favorites are also making a comeback, with companies like Avis and Carvana leading the charge. This rally is not limited to mega-caps or AI names but includes companies with no earnings and little business stability. This trend has raised concerns among some investment strategists, who warn that a prolonged rally in low-quality, speculative stocks could be a cause for concern.

The shift in investor sentiment is being fueled by a mix of optimism around rate cuts, economic resilience, and political easing. The belief that the White House will take a softer stance on trade and inflation has helped bring bullish energy back to the market. June's jobs report, which showed steady payroll growth and a drop in unemployment, has given traders more confidence that the second half of 2025 could deliver strong growth without spiking inflation.

This optimism has led to a risk-on attitude among traders, with the S&P 500 and Nasdaq both closing at record highs just before the holiday break. The fear that dominated the market just three months ago has been replaced by a fear of missing out on the next pop. This has led to a surge in leveraged ETFs, with Invesco's ProShares UltraPro QQQ seeing record inflows in early April.

However, the risk of collapse is real, and investors need to keep in mind that long-term stock returns come back to earnings. While some speculative stocks can go on huge runs, the vast majority of stock returns come back to earnings in the long run. Investors need to be cautious and keep this in mind as they navigate this volatile market.