Unprofitable Small-Cap Stocks Outperform as Russell 2000 Surges in 2026
Since mid-2025, Russell 2000 companies with negative EPS have returned +154%, far outpacing profitable firms' +34%. Year-to-date, unprofitable firms are up 45% vs. 18% for profitable ones, driving the Russell 2000 to a 20% gain.
Since mid-2025, unprofitable small-cap stocks (companies with negative EPS in the Russell 2000) have surged 154%, while profitable firms gained just 34%. Year-to-date, the trend continues: unprofitable companies are up 45% vs. 18% for profitable ones. This has lifted the Russell 2000 index 20% year-to-date in 2026, on pace for its best year since 2003.
By comparison, the S&P 500 has risen 11%, and the Magnificent 7 stocks have gained only 4%. The outperformance is driven by small-cap technology and infrastructure firms benefiting from AI spending. The market currently rewards AI exposure irrespective of profitability.
(Source: @TheKobeissiLetter)
Source: The Kobeissi Letter