S&P 500 to Post Biggest Gain Since 1982, Goldman Says

July 20 (Bloomberg) -- Goldman Sachs Group Inc. boosted its forecast for the Standard & Poor 500 Index, saying improving earnings will spur the steepest second-half rally since 1982.

The benchmark index for U.S. stocks will end the year at 1,060, 15 percent above its level on June 30 and an increase from David Kostin’s prior projection of 940. The chief U.S. investment strategist at New York-based Goldman Sachs also lifted his 2009 and 2010 earnings per share estimates for S&P 500 companies to $52 and $75, which are 30 percent and 19 percent higher than his prior estimates, respectively.

“Improvement in ex-financial earnings per share, stabilization in profit margins and higher forward EPS guidance all point to a rising market through 2009,” Kostin wrote in a report today.

The S&P 500 rallied the most since March last week as companies from Goldman Sachs to Intel Corp. reported results that topped analysts’ estimates. Since March 9, the gauge has rebounded 39 percent amid speculation the economy is recovering.

Kostin is now tied with Deutsche Bank AG’s Binky Chadha for the second-highest S&P 500 forecast among 10 Wall Street strategists tracked by Bloomberg News. Only JPMorgan Chase & Co.’s Thomas Lee, at 1,100, is more bullish on stocks. Barclays Plc’s Barry Knapp, who had been the pessimistic U.S. strategist, increased his projection a week ago following the 40 percent surge in the S&P 500 between March and June, the biggest gain since the 1930s.

The average year-end forecast for the S&P 500 among the 10 Wall Street strategists followed by Bloomberg News is now 997.

Strategists will get it wrong consistently. When they start to turn bullish, the actual result will tend to overshoot. If they are looking around 1,000 - 1050, the actual will overshoot another 10-15%, that means 1,150 is quite possible.