Wall Street investors are a bit more pessimistic than they should be despite a host of negative factors such as a weak U.S. economy and high energy costs, Goldman Sachs strategist Abby Joseph Cohen said.

The U.S. stock market right now is priced about 15 percent below where it should be, Cohen told Reuters on the sidelines of the President's Conference in Jerusalem on Wednesday. Our feeling is the likely scenario is better than what investors are expecting.

Goldman projects the S&P 500 index <.SPX> will reach 1,450 by year end and 1,500 in the next 12 months, from 1,295.52 on Tuesday.

Investors, she said, were rightly concerned about the economy, the European debt crisis, supply chain disruptions from the Japan earthquake, U.S. tornadoes, and higher energy prices, which act as a tax on the economy.

The market is not pricing in the happiest of scenarios, Cohen said. Investors are climbing the proverbial wall of worry. But it is good for investors to be nervous. When investors are no longer nervous about anything that's when you have to be worried.

Such nervousness has led to good buying opportunities in the market -- mainly in areas where the United States offers value added products such as technology and biotech, she said.

Highly cyclical areas look interesting right now, Cohen said. We have great strength in investment in business equipment -- technology, telecommunications, computer software and applications and also aircraft and avionics. U.S. companies are generating very good revenues in these categories.

Cohen, believes the U.S. economy will not head back into recession.

That doesn't mean the economy isn't slowing. Of course it is slowing, said Cohen, noting economic growth has eased to 2 to 2.5 percent due to higher energy costs, supply disruptions from Japan and the end to government stimulus spending.

The longer term outlook is for U.S. growth of 3 percent, which Cohen said was faster than Europe and Japan. The United States, she noted, was structurally in good shape in part due to a productive workforce.

The economy could grow faster if not for weakness in Europe, the United States' largest trading partner after Canada and Mexico.

One reason the U.S. will avoid a double-dip recession is the rebound in the banking sector, Cohen said.

Banks are beginning to lend again, she said. Small and mid-size businesses were having a hard time borrowing money but over the last three to six months that's gotten much easier. It's these small and mid-size companies that are responsible for much of the job creation.

Cohen said one change to the U.S. economy will be the end to a 30-year stretch of disinflation. The big trend in prices is flat to up, she said, noting that in the short run headline inflation will move lower because energy prices have fallen.

In 2012, energy prices should rise again, with oil hitting $100 a barrel and moving higher from there, she said.

For the time being, U.S. bond yields and the shape of the yield curve should not move much.

It will take quite a while before rates rise notably, Cohen said. The Federal Reserve is not in any hurry to raise rates, there is spare capacity in the U.S. economy and unemployment rate is too high.

(Editing by Elaine Hardcastle)

Mexico Japan Canada Unemployment