Believing in Estimates Means 20% Advance for S&P 500 (Update4)

Nov. 10 (Bloomberg) -- Even after cutting estimates at the fastest rate ever, Wall Street strategists still need the biggest year-end rally in the Standard & Poor's 500 Index for their forecasts to come true.

Strategists were also calling for a record gain at this time last year, after the first quarterly decline in corporate profits dragged the S&P 500 down from its high of 1,565.15 on Oct. 9, 2007. It never materialized and stocks have dropped 41 percent since.

Biggest Bears
Kostin, Trennert and Lee are among the most pessimistic of Wall Street strategists with year-end estimates tracked by Bloomberg. The three expect the benchmark for American equities to end 2008 at an average of 1,075, up 15 percent from its closing level last week.



The average Wall Street forecast calls for the S&P 500 to break out of a bear market and surge 20 percent to 1,118 by Dec. 31 -- more than twice as much as the biggest-ever advance to close out a year, according to data compiled by Bloomberg. Strategists were even more bullish at the beginning of the year, predicting that the S&P 500 would end 2008 at a record 1,632.


Bull bets
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1)
``The U.S. is going to be the first market out of the bottom,'' Barton Biggs, a former Morgan Stanley strategist who now runs Traxis Partners LLC, a New York-based hedge fund, said on Bloomberg Television. ``We're at a major buying opportunity.''

2)
He says stocks will rebound as borrowing costs fall.
``The market discounted what we believe will be a recession in 2009'' when it reached a five-year low of 848.92 on Oct. 27, Trennert said.


BEAR bets
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1)
``Even a 15 percent gain could be a stretch,'' said Robert Doll, who helps manage $1.3 trillion as chief investment officer for BlackRock Inc. in Plainsboro, New Jersey. ``My guess is from here to the end of the year we do have another rally, but confined inside a narrower trading range.''


2)
Still, the 20 percent rally strategists predict must overcome a deteriorating economy as the fallout from the credit crisis spreads. The jobless rate rose to 6.5 percent in October from 6.1 percent the previous month.

``It's a stretch,'' said Leo Grohowski, the chief investment officer for the wealth management unit of Bank of New York Mellon Corp., which oversees $158 billi