Dream Stocks and Danger Signs
Markets may not be rational, but they sure are exciting. In 2025, profitability has taken a back seat to potential. This week’s top performers include a lidar company with four straight quarters of losses and a digital health platform running deep in the red, yet their stock prices are flying. It’s not just about financial statements anymore. It’s about the narrative, the buzz, and whether you’re the next AI, EV, or quantum breakthrough darling.
Today’s Market Pulse looks under the hood of this speculative engine. Are we back in 2021 or is this a whole new beast? We’ll dig into that in our Main Topic, where we look at why fundamentals are being sidelined and what that means for long-term investors.
In This Week I Learned, we’ll explore how momentum investing became so dominant again and why even seasoned investors keep falling for the “next big thing.” And stick around for The Fun Corner, where we take a quick, humorous look at a “famous” stock that once soared on pure hype and crashed just as fast.
Markets might seem euphoric now, but underneath the surface, signs of strain are building. Let’s unpack what’s really moving stocks this year and how not to get caught in the hype trap.
This Week I Learned…
The Seduction of the Momentum Trade
Momentum trading is recognized as a recurring behavioral phenomenon in financial markets rather than a temporary trend. While momentum strategies have existed for many years, interest in them typically increases during speculative market periods. For example, stocks like AEVA can experience significant gains, such as 500 percent, even in the face of quarterly losses. This behavior illustrates the mechanics of herd behavior in the market.
Momentum works until it doesn’t. The strategy involves buying assets that are already on the rise, under the assumption that they’ll continue to climb. It sounds simple. But the reasons why momentum keeps reemerging are more complex: recency bias, FOMO, and the seductive nature of trending narratives all play a role.
Many of 2025’s story stocks echo the boom of 2021, when meme stocks and pandemic darlings ruled. But there’s a twist. Instead of nostalgia, today’s hype is built around future-facing tech. AI, EVs, quantum, and energy transition plays are the new Pelotons and AMCs.
Momentum can outperform. Academic research supports this. But timing the end of a momentum cycle is nearly impossible. As liquidity ebbs or macro sentiment turns, losses come fast. That’s the danger. This isn’t just about stocks going up. It’s about knowing when the air gets thin.
This week, I learned that even a well-told story can end in silence, and investors need to know when to stop clapping.
The Fun Corner
When Stocks Tell Stories Better Than Screenwriters
What do AEVA, FUBO, and GRPN have in common (besides dramatic stock surges)? None of them made a profit recently, but all of them became investor favorites this year.
Here’s your trivia: In 1999, a company called Pixelon threw a 16 million dollar party featuring KISS and The Who, then collapsed within months. Why? Because it faked its streaming tech and burned investor money trying to cover it up with hype.
Sound familiar?
The joke writes itself:
Q: Why did the unprofitable tech stock bring a megaphone to the earnings call?
A: Because shouting a good story is cheaper than showing a good balance sheet.
Momentum is fun until someone checks the books.
Momentum Over Money
Investors in 2025 are facing a surreal environment. Fundamentals, once sacred, are now optional. In today’s market, telling a compelling story outweighs generating steady profit, and investors are rewarding companies with promises rather than profits.
Take AEVA, the year’s top gainer with a 515 percent return. It hasn’t posted a profit in over a year. It’s not alone. Of the top 50 performers in the Russell 3000, 45 have posted at least one loss in the past four quarters. And yet, they’re the stars of the momentum trade.
What’s powering this? Partly, it’s performance chasing. When a stock doubles, others jump in out of fear of missing more upside. Social media platforms amplify these moves. Platforms like Reddit and X give even niche stocks viral potential. And ETFs like MTUM are adding fuel, gaining 15 percent year to date as momentum becomes self-fulfilling.
But risks are building. Analysts warn that if earnings don’t materialize, these high-fliers could crash hard. Speculation has a cost, and the warning signs, from rising gold prices to bond market jitters, suggest some investors are hedging.
Momentum trades can persist. But they don’t last forever. And when narrative collides with numbers, reality tends to win.
The Last Say
Story First, Profits Later? Maybe.
In this week’s Market Pulse, we’ve unpacked the market’s curious faith in companies that lose money but win headlines. The dream trade is back, and it’s moving fast. Stocks with flashy narratives are drawing big gains while fundamentals are waiting in the wings.
From AEVA to Palantir, the race to find “the next Nvidia” has investors ignoring quarterly reports in favor of potential. This mindset has created winners, but it also recalls painful lessons from the not-so-distant past.
Momentum might keep working until something breaks. The last time it ended, interest rates were the culprit. This time, it could be a weaker labor market, rising bond yields, or simply earnings that don’t show up.
For investors, the choice is between staying with the crowd or stepping back before the music stops. There’s nothing wrong with momentum, but chasing a dream without a deadline can be dangerous.
Next week could bring more gains or the first signs of exhaustion. Either way, remember: stories can move markets, but earnings keep them there.
