The S&P 500 stock index will produce a 21% total return this year, according to a report Friday from Goldman Sachs researchers.
The return will consist of a 19% increase in the index level to 1,500 and a 2% dividend yield, they write in their report, “U.S. Equity Views.” The index ended 2010 at 1,257.64. At the close of trading Friday, the index was at 1,271.5.
“We forecast that at year-end 2011 the nominal size of the U.S. economy will be 5% larger than today,” to $15.3 trillion in terms of gross domestic product, David J. Kostin, managing director and U.S. investment strategist in global investment research at Goldman Sachs Group, wrote in the report.
Goldman Sachs economics research unit forecasts a U.S. real GDP growth, adjusted for inflation, of 3.4% in 2011 and 3.8% in 2012.
In addition, Mr. Kostin and his equity research colleagues predict the S&P 500 price-to-earnings ratio will rise by almost 8%, or 1 point, to 14.1 from 13.1, while the level of forward earnings per share, measured using forecasted earning, will be 11% higher than last year.
Goldman Sachs economics research unit forecasts the 10-year U.S. Treasury note yield will rise to 3.75% at the end of 2011 and 4.25% at the end of 2012, from 2.8% in 2010, while the two-year Treasury rate will rise to 1% in 2011 and 2% in 2012, from 0.7% in 2010, the report said.
“U.S. economic recovery prospects improved following the December … compromise between Congress and the White House to extend” the 2001 and 2003 tax cuts for two years, the report said. Other favorable factors include the agreement to provide emergency unemployment benefits through the end of 2011 and reduced payroll taxes this year.