By Caroline Valetkevitch
NEW YORK (Reuters) - U.S. stocks are forecast to post more modest gains this year than in 2014 as rising interest rates and a firmer dollar partly offset strong economic growth, a Reuters poll found.
The S&P 500 (SPX) (INX) will rise to 2,200 by Dec. 31, according to the median forecast of more than 40 strategists polled by Reuters in the past week.
The year-end target, the same as in a December poll, would represent a 5 percent gain from Monday's close of 2,086.24 and a 7 percent increase for 2015.
But that would be the lowest return since 2011 for the benchmark index, which closed out 2014 with an increase of more than 11 percent, its third consecutive year of double-digit gains.
Strategists are optimistic about U.S. economic prospects for 2015, but they said the market could pull back once the Federal Reserve raises interest rates.
The Fed is expected to do so for the first time in almost a decade later this year if the economy, especially the labor market, keeps improving.
A recent Reuters poll showed the majority of Wall Street's top banks see the Fed acting in September. [FED/R]
"Ultimately we think the market is going to end higher, but it's not going to be a straight line by any means," said Dan Suzuki, senior U.S. equity strategist at Bank of America-Merrill Lynch, which has a 2,200 year-end target for the S&P 500.
"We're looking for a lot of volatility."
Strategists lowered their midyear target for the S&P to a median of 2,073 from 2,103 in a December poll and reduced the Dow Jones Industrial Average (DJI) estimate to 18,000 from 18,500.
While concerns about the timing of the Fed's first rate hike will keep investors anxious, the surging U.S. dollar is likely to keep suppressing earnings for U.S. multinationals, strategists said.
The dollar (DXY) is up more than 24 percent against a basket of currencies since May 1, making it tougher for U.S. companies to compete overseas.
S&P 500 earnings estimates for 2015 have fallen sharply since the start of the year, and profit growth for the year is now forecast to increase just 1.8 percent from 2014, Thomson Reuters data showed.
"Anyone who has any kind of U.S. multinational exposure is going to be looking for safe havens," said Robert Pavlik, chief market strategist at Boston Private Wealth in New York.
The S&P 500's forward price-to-earnings ratio stands at 17.2, compared with 12.2 at the end of 2011 and 16.9 at the end of 2014, Thomson Reuters data showed.
There was little consensus among strategists on which sectors were likely to outperform but several liked technology, while they were bearish on energy and materials because of falling commodities prices.
They also expect utilities, which have done well because of extremely low interest rates, to underperform.
The Dow is expected to rise to 18,850 by year-end, 5 percent higher than Monday's close and near the December target of 18,858.