Kostin, the New York-based strategist at the firm, lifted his estimate for earnings by companies in the benchmark stock measure to $100 a share in 2012 from $98, according to a note dated yesterday. He boosted his projection for combined profit this year by $1 to $97.

The S&P 500 declined 0.9 percent this year through yesterday amid concern European officials will fail to tame the region’s debt crisis, triggering a global recession. The gauge’s price-earnings multiple based on estimated profit for the next year has averaged 12.9 times this year and fell as low as 11 times on Oct. 3, according to data compiled by Bloomberg.

“The U.S. economy remains in stagnation,” Kostin said. “This fact will limit any significant rally or sustained P/E expansion in the S&P 500 in 2012. The high degree of political uncertainty coupled with downside policy tail risk drives our view that equity investors should focus on the underlying fundamentals and position portfolios for the worst while hoping for the best.”

The S&P 500 fell 0.2 percent to 1,244.48 at 12:34 p.m. New York time.

Kostin’s projection for the S&P 500 in 2012 is 0.2 percent higher than the index’s closing level yesterday of 1,246.96. His estimate is the lowest out of six strategists’ forecasts compiled by Bloomberg. The average estimate is for the benchmark equity measure to climb to 1,398, according to the survey.

Goldman Sachs predicts the U.S. economy will post its fifth straight year of economic stagnation in 2012 with growth at 1.5 percent. Kostin’s team examined 17 periods of prolonged low economic growth in countries since 1980 and found P/E multiples “tend to stay flat” during these times.

The collapse of the euro could wipe 25 percent in value from stocks, driving the S&P 500 to 900, Kostin said in the note.

“The European sovereign debt and banking crises likely will be resolved during the next six months,” he wrote in the note. “The euro situation must be resolved in order for tail risk to recede and allow the possibility for share prices to advance.”