March 17 (Bloomberg) -- Abby Joseph Cohen, the second-most bullish Wall Street strategist at the start of the year, was replaced by Goldman Sachs Group Inc. as the bank's chief forecaster for the U.S. stock market.

Cohen, 56, gave up the title of chief investment strategist and will no longer make predictions for the Standard & Poor's 500 Index in her new role as senior investment strategist, Goldman spokesman Ed Canaday said in an interview. David Kostin will make the calls as U.S. investment strategist.

Kostin, 44, said today he expects the benchmark index for U.S. stocks to fall 10 percent to 1,160 in the ``near term'' before rebounding to 1,380 by year's end. Cohen in December predicted the S&P 500 would reach 1,675 in 2008.

``Sounds like it's a downgrade in a position,'' said Andy Engel, who helps manage $4.3 billion at Leuthold Weeden Capital Management in Minneapolis. ``People have been disappointed in her outlook over the years, and she's been pegged as overly bullish on the market.''

The S&P 500, which has fallen 13 percent this year, lost 0.9 percent to 1,276.60 today.

Cohen, known for her bullish predictions during the 1990s, will develop public policy ideas related to capital markets as president of Goldman's Global Markets Institute. She wrote about growing investor interest in climate change and covered a United Nations meeting on the subject in a report dated March 14.

Her year-end forecast for the S&P 500 at the beginning of 2008 was second only to the prediction of 1,700 from Bear Stearns Cos.'s Jonathan Golub, HSBC Holdings Plc's Kevin Gardiner and UBS AG's David Bianco.

2007, 2006

Cohen at the start of 2007 expected the S&P 500 to rise 9.3 percent to 1,550 that year, then raised her year-end forecast to 1,600 on May 7, when the S&P 500 stood at 1,505.62. The index ended 2007 at 1468.36, 8.2 percent below her forecast.

Her calls on the market in 2006 were more accurate. Cohen said on June 13, 2006, that stocks had fallen too far and the S&P 500 would rebound to 1,400 by year end. The index set its low for the year that day and finished 2006 at 1418.3.

Cohen will work with clients ``around the world and provide commentary on financial markets focusing more on longer-term market activity,'' Canaday said in an e-mailed statement.

``I spend half of my time traveling overseas, working with our clients on issues like environmental sensitivity, regulatory matters and accounting,'' Cohen said during in an interview today.

`Longer-Term' View

Cohen, who has a master's degree in economics from George Washington University in the nation's capital, said she wanted someone else to make day-to-day market commentary. She picked Kostin to lead the U.S. portfolio strategy team for his ``astute company analysis'' and ``macroeconomic understanding.''

``I'm sure there are people out there who will feel a great sense of loss'' from Cohen no longer giving S&P 500 forecasts, said John Wilson, co-director of equity strategy at Morgan Keegan, which manages $120 billion in Memphis, Tennessee. ``More power to her. I'm sure she's looking forward to working on longer-term ideas.''

Cohen, who was the top-ranked strategist in Institutional Investor magazine's surveys in 1998 and 1999, stayed bullish on computer-related stocks for too long as the S&P 500 suffered a bear market from March 2000 to October 2002. She said in October 2000 that technology shares would be a good investment in 2001. The S&P 500 Information Technology Index lost 26 percent that year.

`More Constrained'

Kostin joined Goldman's U.S. portfolio strategy team four years ago after working as an analyst covering real estate investment trusts.

Investors should expect a ``wave'' of companies cutting earnings forecasts and reporting profit that miss analysts' estimates, Kostin wrote in a report today. He predicts S&P 500 earnings will drop 5.6 percent in 2008 and rebound the following year, rising 6.4 percent. That's more pessimistic than the average estimate from a Bloomberg poll of analysts, who forecast earnings will climb 12 percent and 14 percent in 2008 and 2009, respectively.

``The consumer is more constrained today than ever before,'' Kostin said. Lower-than-forecast quarterly earnings from companies ``will be the catalyst to drive the market lower.''

Goldman economists expect a ``mild'' recession this quarter and next, according to the company's research report. Tax rebates and interest-rate cuts by the Federal Reserve will cause a rebound in the second half of the year and push the S&P 500 to 1,380 by year-end. That implies an 8.1 percent gain, more than twice last year's advance, for the index from today's close.

``The pop in growth during the second half of 2008 may be more like a supernova that burns brightly for a brief period before fading quickly,'' Kostin said.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

Last Updated: March 18, 2008 00:23 EDT