The big things you need to know:

• First, we are modestly revising our YE 2025 S&P 500 price target, taking it up 3% to 5,730 from 5,550. Our valuation and earnings models drive this number.
• Second, we view sentiment as the main risk to our call. Even though it’s been melting up in recent weeks, our sentiment model (based on AAII net bulls) is still the most constructive one in our price target toolkit, and our analysis of S&P 500 moves off the lows of the major post GFC drawdowns indicates that the index could have more room to run through year-end 2025.
• Third, we review the case for and against Small Caps, which were in focus in our meetings last week. We remain neutral as Small Caps have been derisked to a greater degree than Large Caps, making an underweight unwise, but the conditions for outperformance seem elusive.