S&P 500 to Dip to 990 in 1H'10, But Rally to 1,120 by Year-End -Barclays

Barclays' top US equity strategist, Barry Knapp, is forecasting a rather sharp first half 2010 decline in the S&P 500 (NYSE: SPY) today, causing traders to rethink their long positions heading into the last few weeks of trading in 2009.

The analyst expects the highly-tracked index to sink to as low as 990 sometime during the first six months of next year. With the S&P 500 trading just over the 1,100 level today, the target suggests downside of nearly 10% to this level. Going out a little further, Knapp also gave a look at year-end 2010, predicting that the index will rally strongly during the second half and close next year at 1,120.

Despite the near-term bearishness, Knapp revised his EPS estimate for the S&P 500 from $60/share to $66/share. As a Bloomberg article points out, the index currently trades at 22x 2009 corporate profits, the highest multiple since 2002. Yikes...

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