Goldman's Cohen says S&P underpriced

By Emily Chasan

NEW YORK (Reuters) - The Standard & Poor's 500 index .SPX is currently underpriced, and stocks have fallen almost as much as they are going to fall, Goldman Sachs' Chief U.S. Investment Strategist Abby Joseph Cohen said on Wednesday.

"We think a good deal of the correction has already occurred," Cohen said at the Reuters Investment Outlook summit in New York.

Cohen said that her target for the S&P 500 index was 1,400 by the end of the year, about 15 percent above the current level.

Cohen said she expects growth in the U.S. economy and corporate profits to slow to a more sustainable rate over the remainder of the year.

FED NEARLY DONE

Partially driving Cohen's view is her expectation that the Federal Reserve is nearly done raising interest rates, she said.

"The Fed is probably going to be finished before the end of the year," Cohen said. "This is a Federal Reserve that has already done most of what it is going to do."

"The fact that people are quibbling over whether they are going to do one more or two more, in some ways is very important on a day-to-day basis. But in terms of the intermediate to longer-term outlook, it doesn't really matter."

She added that she does not expect the Federal Reserve to dramatically overshoot its cycle of interest rate increases.

"We think the Fed is finished with another one or two increases likely," Cohen said.

MOMENTUM REVERSED

Investors' fundamental attitudes have also been changing, Cohen said.

"There was a very significant interest on the part of investors to chase momentum," she said. "From the market perspective, over the last five weeks there has been an incredible reversal of momentum ... the momentum that drove small-cap and high-beta stocks I see reversing."

High-beta refers to stocks that are riskier and more volatile than the stock market as a whole, but often soar when the market is up.

But U.S. stocks have fallen off May peaks in recent weeks, amid a global rout on concerns about rising interest rates and inflation in the face of slower economic growth. The Dow Jones industrial average .DJI, Nasdaq Composite Index and S&P 500 index have all erased their gains for the year.  Continued...