(Bloomberg News) The Standard & Poor's 500 Index will rise 8.4% to 1,275 in the next 12 months, as investors become less risk-averse and look ahead to stronger economic growth in 2012, Goldman Sachs Group Inc. said.

The estimate for year-end 2010 remains 1,200, and stocks will have "flat" returns in the first quarter of 2011 because the economic recovery remains fragile, strategists led by David Kostin wrote in a report dated October 15.

"The cost of equity should decline slightly as 2011 progresses and investors turn their attention to the economic growth prospects for 2012," the report said.

The S&P 500 is up 5.5% this year as of October 15, as optimism about corporate earnings and the likelihood that the Federal Reserve will pump more money into the system outweigh concerns about ballooning sovereign debt in some European countries and the strength of the economic recovery. The gauge rose 0.3% to 1,180.33 as of 12:14 p.m. in New York.

Goldman said the S&P 500 will still be at 1,200 in six months, as Fed stimulus measures will have a "minimal" impact on earnings and "firms will spend cash slowly given spare capacity, desire to preserve margins and low chief executive officer confidence."

The strategists expect no expansion in price-to-earnings ratio on the benchmark index for U.S. stocks in the next 12 months.

The report said risks to the estimates include a jump in management confidence, a rise in trade protectionism or a slowdown in emerging markets, especially China.