S&P 500 may reach 2,100 as gains last through 2015, Goldman says

Goldman Sachs Group Inc. said the U.S. stock-market rally may last at least another 2 1/2 years, sending the Standard & Poor’s 500 Index up 26% to 2,100.

David Kostin, the bank’s New York-based chief U.S. equity strategist, raised forecasts for the U.S. equity benchmark, predicting it will finish 2013 at 1,750 and 2014 at 1,900 as stock valuations increase, according to a research report dated yesterday. The S&P 500 trades at 16.3 times reported operating profit, 16% below the average since 1998, data compiled by Bloomberg show.

“Our positive 2013 outlook for S&P 500 has played out much faster than we expected,” Kostin wrote. “Reasons for a higher multiple include increased confidence in the medium-term outlook for U.S. economic growth, improving investor risk appetite and the wide gap between equity and bond yields that we now assume will be closed more by stocks than bonds.”

Goldman Sachs’s increase comes after Thomas Lee, JPMorgan Chase & Co.’s chief U.S. equity strategist, lifted his estimate to 1,715 from 1,580 last week. The S&P 500 has surged 17% in 2013 as companies beat earnings estimates and the Federal Reserve continued its unprecedented bond-buying program known as quantitative easing.

The equity benchmark slipped 0.2% to 1,663.84 at 10:48 a.m. New York time today. The index has rallied 127 days without a retreat exceeding 5% or more, the longest stretch since the 173 days ending Feb. 20, 2007, data compiled by Bloomberg show.

Excess Returns

U.S. stocks are poised to gain during the next five years thanks to record-low interest rates on government bonds, according to researchers at the Federal Reserve Bank of New York. A survey of 29 models for the equity risk premium -- the expected future return of stocks over the risk-free rate offered by Treasuries -- shows “we will enjoy historically high excess returns for the S&P 500,” Fed economists Fernando Duarte and Carlo Rosa said in a paper released on May 8. The premium rose to a record 5.4% in December, they said.

The S&P 500 added 2.1% last week, its fourth straight weekly gain, as gauges of leading economic indicators and consumer sentiment beat estimates. The U.S. bull market has entered its fifth year, adding about $11.5 trillion in market value, according to data compiled by Bloomberg.

Bloomberg News

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