GOLDMAN: Our Clients Are More Bullish About Stocks Than We Are

Goldman Sachs expects the S&P 500 to rally modestly to 1,900 by the end of 2014. That represents a 5% gain from today's levels.

However, Goldman's clients are much more bullish.

"Relative to Goldman Sachs forecasts, clients expect (a) slower GDP growth; (b) a similar level of profit growth; and (c) a higher S&P 500 price target in the vicinity of 2000 (12% upside) compared with a 6% return to our target of 1900," wrote David Kostin, Goldman Sachs' top U.S. equity strategist.

According to Bloomberg's survey, the median S&P 500 target for 2014 is 1,913 and the average is 1,919. Oppenheimer's John Stoltzfus and Morgan Stanley's Adam Parker are on the bullish end of that survey, both issuing targets of 2,014 for the index.

"Momentum is one reason that investors have a higher expected return for stocks than we forecast," added Kostin. "Stocks have soared 25% in 2013 after a strong 13% gain in 2012. S&P 500 has climbed by 165% since it bottomed at 667 on March 9, 2009. Moreover, the YTD rise has been unusually smooth. Realized volatility is just 11% and the maximum drawdown in 2013 has been only 6%."

Kostin believes the index currently trades at fair value.