Goldman Sees S&P 500 Falling 10% Next Year Before Rally to 1,900

The Standard & Poor’s 500 Index will probably fall 10 percent in the next 12 months before rebounding to end the year at 1,900, according to Goldman Sachs Group Inc.

The 1,900 forecast from the New York-based firm implies about a 5 percent advance from today’s level. The 25 months since the S&P 500’s last 10 percent drop is the longest stretch without such a decline since 2007, according to S&P.

“It will be less smooth sailing,” David Kostin, the bank’s chief U.S. equity strategist, said on Bloomberg Television’s “Market Makers” program. “The likelihood is we will have something that will prompt a reduction -- a retreat in the market. But overall the market should be rising, and that’s because the U.S. economy will be getting better.”

Kostin predicts the S&P 500 will reach 2,100 by the end of 2015 and 2,200 by the end of 2016. He said he favors technology, industrial and consumer discretionary companies because they will benefit the most from an improving economy.

Economists surveyed by Bloomberg forecast U.S. economic growth will accelerate to 2.6 percent next year and 3 percent in 2015, compared with a 1.7 percent expansion in 2013.

Investors should buy shares of companies that are increasing capital spending or repurchasing stock, he said. He’s also bullish on firms that have above-average operating leverage, a measure of how well a company can control fixed and variable costs.

“All these themes are about taking advantage of the economy improving,” Kostin said.

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