S&P 500 Rallying 9.8% Is Forecast of U.S. Strategists

The Wall Street strategists who correctly predicted U.S. stocks would rebound from the steepest plunge since the Great Depression now say the Standard & Poor’s 500 Index will rally 9.8 percent next year.

Thomas Lee, the chief U.S. equity strategist at JPMorgan Chase & Co., and Goldman Sachs Group Inc.’s David Kostin, this year’s most-accurate forecasters, say Federal Reserve interest rates near zero and profit growth of more than 26 percent will drive the S&P 500 to 1,300 and 1,250, respectively, in 2010. The combination of higher earnings and an increase in mergers and acquisitions will boost the index to 1,250, according to Thomas Doerflinger, a senior strategist at UBS AG in New York.

While analysts failed to foresee 2008’s crash, when credit markets froze and the S&P 500 fell the most since 1937, investors who followed their advice this year were rewarded with 23 percent gains. The index will end 2010 at 1,223, according to the average of 10 projections in a Bloomberg News survey. Their optimism clashes with Pacific Investment Management Co.’s Mohamed El-Erian and economist Nouriel Roubini, who predict smaller returns or losses. (more)