Don't Fear the Dip: Rare Earth Stocks May Rebound Fast

A sea of red has washed over the U.S. rare earth mining sector. Fear has gripped the market as shares of key domestic producers dropped on heavy volume, with MP Materials (NYSE: MP) falling 7.36%, USA Rare Earth (NASDAQ: USAR) dropping 8.36%, and Critical Metals Corp. (NASDAQ: CRML) plunging 13.71% since Friday, Oct. 24, 2025.  

The catalyst was not a failure in operations or a downgrade in fundamentals, but a geopolitical headline: reports of a potential U.S.-China trade truce that could pause tariffs and recently imposed Chinese export controls on rare earth materials. 

The late October news immediately spooked investors who had priced in a vertigo-inducing geopolitical premium on the stocks due to supply chain security concerns. The sell-off in the sector now raises a critical question: Is this a trick or a treat?

Are these the first warning signs of a horrific new fundamental weakness, or is the market’s melodramatic overreaction to a Halloween scare creating the rare opportunity for investors to treat themselves?

Don’t Confuse Today’s Weather With the Climate

The bearish logic driving the sell-off is that a trade truce reduces the immediate urgency for domestic supply chain reform, making the sector's high valuations unsustainable. This argument, however, confuses temporary political tactics with a permanent strategic shift. The onshoring of critical minerals is not a reaction to a single tariff threat; it is a multi-year, bipartisan national security imperative aimed at mitigating a recognized economic vulnerability.

The evidence of this long-term commitment is written into contracts, not just headlines. For example, the U.S. Department of Defense's landmark agreements with MP Materials include a 10-year magnet offtake commitment and a price floor for key rare-earth elements. This provides a crucial layer of revenue predictability and downside protection, a rarity for any company tied to commodity markets. 

These are durable, institutional safeguards designed to foster a domestic industry over the next decade, insulating it from the day-to-day noise of trade negotiations. The market is reacting to the political weather, but the strategic climate remains hot and unchanged.

Data vs. Drama: A Foundation of Real Progress

While stock charts show volatility, company reports reveal a story of steady, fundamental progress. The sell-off has driven valuations down just as these producers are reaching critical inflection points from development to production.

• MP Materials: From Miner to Manufacturer. The company has already proved that its vertical integration strategy works. In its second-quarter 2025 earnings results, MP Materials reported $19.9 million in revenue from its new Magnetics segment, demonstrating its ability to produce and sell high-value magnetic precursor products. More importantly, it is executing this expansion from a position of financial strength, ending the quarter with a formidable $753.7 million in cash and short-term investments.
• USA Rare Earth: On Track and Funded. The company is hitting its development targets while managing its finances effectively. The Stillwater magnet facility remains on schedule for commissioning in Q1 2026, a critical catalyst for revenue generation. USA Rare Earth’s second quarter of 2025 revealed an adjusted net loss of only 8 cents per share, beating analyst estimates and signaling disciplined cost control. The 8 cents per share exceeds expectations and indicates careful expense management. With $121.8 million in cash and no significant debt, it is well-capitalized to reach its initial production goals.
• Critical Metals Corp.: De-risking a World-Class Asset. Critical Metals is making its massive Tanbreez project in Greenland more tangible. The company recently secured $50 million in new funding to complete its Bankable Feasibility Study by year-end, a crucial step toward a final investment decision. The asset is highly strategic, noted for its high concentration of valuable heavy rare-earth elements (HREEs), essential for high-performance magnets and in short supply globally.

How the Coiled Spring of Pessimism Could Fuel a Rebound

The extremely high level of bearish bets against the sector adds a powerful technical dynamic to the bullish case. Short interest (the number of shares sold by investors betting the price will fall) is extremely high at 25.51% of the publicly traded float for Critical Metals Corp, 17.89% for MP Materials, and 14.45% for USA Rare Earth.

This extreme pessimism creates a coiled spring scenario. The short interest ratios for these stocks and the sector indicate a crowded trading area. Should any positive news emerge, these short-sellers could be forced to buy back shares en masse to avoid further losses. This sudden surge in buying demand can trigger a short squeeze, a rapid and powerful price surge that the bears fuel as they rush for the exits.

An Inflection Point for Patient Investors

The current environment presents a clear divergence. The market is pricing in short-term political drama, while the long-term, data-supported fundamentals, including structural demand, national security policy, and operational execution, continue to strengthen. 

This disconnect has created an inflection point. While the market is fearful, analysts with a long-term view maintain a Moderate Buy consensus on key players like MP Materials and USA Rare Earth. Their average price targets imply a healthy upside of nearly 19% for MP Materials and nearly 25% for USA Rare Earth, with some individual firms projecting returns far higher.

The market's Halloween fear may have created a compelling opportunity for investors with a time horizon measured in months, not hours or days. The current downturn offers multiple entry points into a strategically vital sector at valuations not seen in months, giving investors a chance to invest in the foundational pieces of America's future industrial and defense supply chain. A sweet Halloween treat indeed.

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The article "Don’t Fear the Dip: Rare Earth Stocks May Rebound Fast" first appeared on MarketBeat.