By Angela Moon
NEW YORK (Reuters) - Wall Street's Standard & Poor's 500 <.SPX> index will hit 2,000 for the first time before the end of 2014, having already set a series of record highs this year on optimism that interest rates will remain low, a Reuters poll showed on Thursday.
The median forecast of 41 strategists polled in the past week would represent an 8 percent rise in the benchmark index from the end of 2013.
Last week, U.S. Federal Reserve Chair Janet Yellen said interest rates could be "well below longer-run normal values at the end of 2016." Some of the largest U.S. money managers interpreted that as a green light to further stock-market gains despite the S&P 500's climb of 6 percent this year on top of a 30 percent jump in 2013.
"There's a basic floor that's been set by the Fed, and I expect another leg up as money goes out of bonds and into equities," said Mark Grant, managing director at Southwest Securities in Fort Lauderdale, Florida. He expects the S&P 500 to be at 2,100 by year-end.
If the index rises to 2,000 as anticipated, equities offer a more attractive return than other assets. An average S&P 500 dividend yield is around 2 percent, compared with 2.62 percent from a 10-year Treasury note.
Even if the market closed the year at current levels, it would still mark the best three-year run for U.S. stocks since the 1997-1999 period.
"The Fed's continued easy money is the No. 1 impact on stocks, bar none, and it will be reflected in higher stock prices, especially for financials, which have yet to fully recover from 2008," said Adam Sarhan, chief executive officer of Sarhan Capital in New York.
The S&P financial sector index <.SPSY> is up almost 5 percent so far this year.
"The Nasdaq, Nasdaq 100 and semiconductors are all below their lifetime highs, and money is looking to rotate into areas that still look undervalued, as these do," Sarhan said.
While the U.S. economy suffered in a weak first quarter, contracting at an annual rate of 2.9 percent, economists say the effects of an unusually bad winter will fade.
Expectations for U.S. corporate profit growth have also improved. Analysts expect S&P 500 earnings to increase by 9.1 percent this year, up from an April 1 forecast of 8.7 percent growth, according to Thomson Reuters data.
By mid-2015, the S&P 500 is expected to rise to 2,053, up around 5 percent from current levels, the poll showed. The Dow Jones industrial average <.DJI> is expected to be at 17,275 by the end of 2014 and 18,000 by mid-2015, up from 16,868 currently.
The CBOE Volatility index <.VIX> is seen rising to 16 by December, based on VIX futures, up 37 percent from its current level but still well below its longer-term average of 20.
(Additonal reporting by Rodrigo Campos, Ryan Vlastelica, Chuck Mikolajczak and Caroline Valetkevitch; Editing by Lisa Von Ahn)