AS the curtain opens on the 2025 stock market, it's fair to say that it will be among the most anticipated encores in financial history-if only because 2024 is a very tough act to follow. The broad U.S. market, measured by the S&P 500 index, notched 47 new highs over the course of the calendar year through October, to the surprise of many investors who watched from the sidelines with huge cash positions, and to the chagrin of many Wall Street experts, who had to boost their year-end forecasts for the benchmark throughout the year some, multiple times.

"We got stampeded by the market.

There are hoof marks on our backs," says strategist Ed Yardeni, of Yardeni Research, who began 2024 with one of the highest targets on Wall Street, then raised it in June. The index closed at 5705 on October 31, the date for prices, returns and other data in this story. That's a price gain of 36% over the 12 months since our last outlook.

The powerful rally has pushed stock valuations close to red-flag territory for many market watchers, with the S&P 500 trading at nearly 22 times expected earnings for the coming 12 months-above its fiveyear average of 19.6 and 10-year average of 18.1. "There's no way to sugarcoat it: The S&P 500 is statistically expensive," writes BofA Securities strategist Savita Subramanian in a recent research note.

But it's not as if this high-altitude market is headed off a cliff, with nowhere to go but down. Solid supports include a robust economy, with recent reports coming in strong and some earlier ones revised upward. The base case on Wall Street is now for a soft landing-an economic cooling without a recessionor even no landing. Couple that with interest rate cuts from the Federal Reserve, and you’ve got what some of the most optimistic bulls are calling a “Softilocks” situation: the soft-landing version of a “just right” macroeconomic scenario.