In a unique event, the US government, specifically the Department of Defense (DoD), bought a 15% stake in the nation’s largest rare earth miner, MP Materials (MP). The DoD is buying $400 million of MPโs convertible preferred stock. The transaction will make the government MPโs largest shareholder. The following quote on the benefits of the partnership to the country is from MP CEO James Litinsky, courtesy of Forbes:
โThis partnership will dramatically accelerate Americaโs rare earth magnet manufacturing capabilities, ensuring a secure and resilient supply chain for our national defense and critical industries.โ
The partnership between DoD and MP aims to accelerate the development of the nationโs rare earth magnet supply chain and construct a new โ10Xโ magnet facility. Specifically, its goal is to significantly expand U.S. production of neodymium-iron-boron (NdFeB) magnets, which are critical for military and commercial applications, such as F-35 jets, electric vehicles, and wind turbines. Currently, China produces nearly 90% of NdFeB magnets.
The benefits of the transaction for the country include strategic independence of critical minerals and economic growth. However, the partnership presents the government with risks in terms of market valuations and financial risk if MP canโt live up to expectations. As shown, MP shares rose about 50% on the news.
What To Watch Today
Earnings
Economy
- No economic reports today
Market Trading Update
“Given those more overbought technical conditions, the market couldย enter a period of sideways consolidation or a mild pullbackย in the next 2โ4 weeks. The catalyst for such a correction is unknown, but when markets are very complacent, a reason usually appears in short order. Given elevated RSI and Williams %R, upside is likely capped in the near term unless macro or earnings catalysts re-accelerate buying interest.”
Adding to that analysis, I noted in this past weekend’sย #BullBearReportย that the bull case remains strong, but with the market priced for perfection, any catalyst from economic data or weak earnings guidance could trigger a pullback. Investors should prepare for increased volatility and continue monitoring sector leadership for signs of rotation.
๐3-Month Market Outlook
On Friday, during my discussion with Adam Taggart, I discussed the probabilities of market outcomes over the next 3 months based on current technical, fundamental, and economic underpinnings. While nothing is guaranteed, and the outlook could certainly change next week, the following is our current thinking.
Bull Case (Probability: 50%)
๐น Drivers:
- Strong Q2 earnings,ย especially from tech (NVDA, AVGO, MSFT), confirm accelerating AI-driven growth.
- Fed cuts in September or Novemberย as inflation continues to trend lower.
- Global liquidity improves,ย with dovish policy shifts in Europe and China.
- Momentum chasing & FOMOย remain strong; CTAs and retail driving advance.
- Seasonality,ย as July and early August tend to favor equities.
๐ฎ 3-Month Outcome:
- Target:ย 6,575 to 6,600ย (+5%)
- Narrative: โThe AI productivity boom + dovish Fed = bullish expansionโ
- Volatility:ย VIX stays sub-15; equity risk premium compresses
Bear Case (Probability: 35%)
๐ป Risks:
- Inflation reacceleratesย (CPI/PCE prints hot), delaying Fed cuts into 2026.
- Earnings disappointmentsย outside of AI/tech.
- Bond yields spikeย โย 10-year Treasury >5%, compressing P/E multiples.
- Geopolitical/election shocks:ย U.S. political risk premium rises into Q4.
- Overbought conditions unwind:ย RSI >70, stretched positioning, low put/call ratios.
๐ฎ 3-Month Outcome:
- Target:ย 5,950 to 6000ย (โ5%)
- Narrative: โMarket priced perfection โ macro cracks are formingโ
- Volatility:ย VIX spikes >20; sector rotation into defensives (healthcare, utilities)
Neutral Case (Probability: 15%)
๐ Scenario:
- Fed remains data-dependent,ย avoiding cuts but not hiking.
- Earnings come in line;ย thereย areย no upside surprises outside AI megacaps.
- Market churns sidewaysย as investors digest valuation stretch.
- Rotation from tech to cyclicals,ย with financials and energy catching bids.
๐ฎ 3-Month Outcome:
- Target:ย 6,135 to 6,390ย (ยฑ 2%)
- Narrative:ย โHealthy digestion phase after a historic runโ
While I have no idea what the next three months will bring, this is not a risk-free market. As noted in the Portfolio Tactics section below, now is a good time to implement risk management measures in your portfolio. Even if the 50% upside probability turns out to be correct, rebalancing risk in portfolios will not significantly impair forward returns.
The Week Ahead
Earnings season begins in earnest this week with the largest banks and smaller regional banks reporting on Tuesday and Wednesday. Netflix will report on Thursday, with AMEX and MMM on Friday. See the section below for more on our expectations from the slew of earnings announcements over the coming few weeks.
Tuesday’s CPI and Wednesday’s PPI reports will be very helpful in appreciating how tariffs are impacting inflation. Thus far, there has been a negligible effect. However, the June reports will fully capture a period when the tariffs were being enforced. If data continues to be on the weak side, we suspect the Fed will become more dovish. However, higher-than-expected inflation data may allow them to continue to postpone rate cuts. Also of note this week will be retail sales on Thursday.
Q2-2025 Earnings Season Preview
The macro-tailwinds of easing trade tensions, falling energy prices, and optimism over Fed rate cuts have helped equity markets return to new highsโฏin June. However, some of those advances will be tested in the coming weeks, as there is a risk of earnings disappointment, particularly as we see continued weakness in the economic data. The Economic Composite Index (roughly 100 data points) has decreased sharply in the last two months. Historically, earnings track real economic activity, suggesting a risk of disappointment exists.
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