New York: Even after cutting estimates at the fastest rate ever, Wall Street strategists still need the biggest year-end rally in the Standard and Poor’s (S&P) 500 index for their forecasts to come true.

David Kostin of Goldman Sachs Group Inc. predicts an advance because US companies are cheap relative to earnings. Strategas Research Partners Llc.’s Jason Trennert is counting on a resumption in bank lending to lift equities. Thomas Lee at JPMorgan Chase and Co. says stocks are swinging so much that a 25% jump by 31 December isn’t out of the question.

Strategists were also calling for a record gain at this time last year, after the first quarterly decline in corporate profits dragged the index down from its high of 1,565.15 on 9 October. It never materialized and stocks fell 41% since.

“It’s very difficult for us to see that kind of turnaround by year-end," said Richard Weiss, who oversees $53 billion (Rs2.51 trillion) as chief investment officer at City National Bank in Beverly Hills, California. “The stock market would need to see a bottoming of this economic cycle, and that is nowhere in sight."

The S&P 500 is poised for its worst year since the 1930s after almost $700 billion in bank losses froze credit markets and spurred concerns the economy will shrink. US equities posted the steepest monthly loss in 21 years in October and $6 trillion was erased from US markets in 2008. The S&P 500 fell 3.9% last week to 930.99.

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%.

“I wouldn’t call it extremely bullish," said New York-based Lee, who says the S&P 500 may rise to 1,125. “The high level of volatility means you’re going to have a pretty wide range of possible outcomes."

The average Wall Street forecast calls for the S&P 500 to break out of a bear market and surge 20% to 1,118 by 31 December—more than twice as much as the biggest-ever advance to close out a year, according to Bloomberg data. Strategists were even more bullish at the start of the year, predicting that the S&P 500 would end 2008 at a record 1,632. Since then, they’ve slashed their projections after failing to foresee the biggest financial crisis since the Great Depression. Strategists cut their forecasts about 28% this year, while the S&P 500 lost 37%.

“Even a 15% gain could be a stretch," said Robert Doll, who helps manage $1.3 trillion as chief investment officer for BlackRock Inc. in 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."

Goldman’s Kostin reduced his S&P 500 prediction by 29% on 13 October to 1,000, saying economies around the world deteriorated and oil prices slid faster than he expected.

Still, Kostin expects the S&P 500 to hit bottom this month and rebound as investors buy shares that are inexpensive compared with companies’ forecast profit. A Goldman spokeswoman said Kostin declined to comment.

The S&P 500 trades at 10.39 times next year’s estimated earnings from continuing operations, compared with the weekly average of 21.1 times historical operating profit over the past decade, according to Bloomberg data.

Michael Tsang, Betty Liu and Whitney Kisling in New York contributed to this story.