“You will never find a more wretched hive of scum and villainy” – Obi-Wan Kenobi
Obi-Wan was talking about Mos Eisley, but he could’ve just as easily meant the Russell 2000. Every October, ghosts come out. Usually, they’re made of plastic and hang from porches, but this year, they’re haunting the markets. Hidden behind the ticker tape of America’s small-cap index are companies that seem alive only on paper. They move, they trade, they even rally, but the numbers beneath are hollow. Revenues are ghostly, profits long vanished.
The Russell 2000 is starting to look less like the future of the American economy and more like a séance for corporate spirits that refuse to rest.
💀 The Mirage of Growth
The Russell 2000 Index tracks roughly 2,000 U.S. small-cap companies, representing the lower two-thirds of the broader Russell 3000 by market cap. In theory, it’s a snapshot of America’s scrappy innovators, the small firms that drive growth. In practice, it’s a haunted mirror reflecting the excesses of cheap money and speculative hope.
As of mid-2025:
- Total market cap: ≈ $2.2 trillion (just 4.4 % of the Russell 3000’s total, down from a 7.6 % historical average).
- Average company size: ≈ $4.3 billion; median: ≈ $1 billion.
- Largest holding: Bloom Energy is valued at around $32 billion, 32 times sales, 16 times forward sales.
And yet, despite these trillions in value, nearly half the index doesn’t make a dime.
🧟 The Profitless Majority
Currently, 40 – 46 % of Russell 2000 companies are unprofitable, compared with just 14 % in 1994. Even scarier, about 10 – 15 % generate little or no revenue at all, mostly early-stage biotech and tech firms kept alive by financing rather than cash flow.
| Metric | 2025 Value | Historical Comparison |
|---|---|---|
| % Unprofitable Companies | 40 – 46 % | 14 % (1994); 43 % (Q3 2024) |
| Index Weight Unprofitable | ≈ 39 % | — |
| YTD Return (Unprofitable) | +19 % | vs +9 % Profitable |
| Expected 2025 EPS Growth | 25 – 26.5 % | vs 10 % Russell 1000 |
Even among the top holdings, the supposed “leaders” of the small-cap pack, roughly 30 % are unprofitable and 20 % have minimal or zero revenue.
A few standouts illustrate the absurdity:
- Insmed (INSM) – Revenue from one product, losses from R&D.
- Summit Therapeutics (SMMT) – Essentially pre-revenue.
- AST SpaceMobile (ASTS) – $5 million in revenue, $350 million in losses; still valued near $30 billion.
- A myriad of Quantum names with speculative products
The Russell 2000 isn’t a broad portfolio of small, efficient businesses; it’s a graveyard littered with half-finished experiments and speculative science projects.
🩸 Monetary Necromancy
For over a decade, near-zero interest rates kept these firms walking. Venture capital and retail speculation funneled billions into companies that promised “the next big thing.” Debt was cheap, dilution forgivable, and profitability optional.
Then rates rose. The resurrection spell broke. Debt matured. Refinancing costs spiked. The free capital that kept the unprofitable alive began to evaporate. The result: an index full of zombie companies, too weak to grow yet too well-funded to die.
🕯️ The Investor’s Delusion
Despite this, the Russell 2000 has outperformed at times in 2025, driven by rate-cut rumors and cyclical optimism. Unprofitable stocks are up roughly 19 % year-to-date, more than double the returns of their profitable peers.
It’s a market driven not by earnings but by imagination, a ghost story told around the Bloomberg terminal. Traders chase a “small-cap comeback,” convinced they’re spotting hidden value. But in truth, they’re chasing shadows.
Buying these names is like buying haunted houses: they look charming in October light, but you don’t want to live there.
🕸️ The Living and the Dead
To be fair, not every small-cap is doomed. A handful of industrial firms, like Comfort Systems USA (FIX), and grocers, like Sprouts Farmers Market (SFM), and defense names like Kratos Defense and Security, continue to generate real profits and cash flow. But they are the exceptions that prove the rule.
The Russell 2000’s weight remains skewed toward companies without sustainable earnings, many with business models built for a world of zero rates and infinite liquidity. Until that changes, this corner of the market will stay haunted.
🎃 Closing Thoughts
The Russell 2000 doesn’t need a catalyst; it needs an exorcism. Investors lured by talk of “cheap” small-caps should remember: cheap and undead are not the same thing.
When profits disappear, valuations become faith-based. And when faith fades, even the ghosts can’t save you.
From those of us here at InvestingForPlebs, we hope you all had a great Halloween!
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