20% year-end rally for S&P 500?

Even after cutting estimates at the fastest rate ever, Wall Street strategists still need the biggest year-end rally in the S&P 500 for their forecasts to come true.

The average Wall Street forecast calls for the S&P 500 to break out of a bear market and surge 20 percent to 1,118 by Dec. 31 -- more than twice as much as the biggest-ever advance to close out a year, according to data compiled by Bloomberg.

David Kostin of Goldman Sachs Group Inc. predicts an advance because U.S. companies are cheap relative to earnings. He reduced his S&P 500 prediction by 29 percent on Oct. 13 to 1,000, saying economies around the world deteriorated and oil prices slid faster than he expected. Strategas Research Partners' Jason Trennert expects the S&P 500 to increase 18 percent to 1,100, counting on a resumption in bank lending to lift equities. Thomas Lee at JPMorgan Chase & Co. says stocks are swinging so much that a 25 percent jump by Dec. 31 isn't out of the question, saying the S&P 500 may rise to 1,125.

Merrill Lynch & Co.'s Richard Bernstein also reduced his forecast last week. Bernstein, Merrill's chief quantitative strategist, cut his 12-month projection for the S&P 500 to 1,047 from 1,248.

The strategist who cut his projection the most since September was Deutsche Bank AG's Binky Chadha, once one of the biggest bulls. Chadha abandoned his year-end call for the S&P 500 to reach 1,350, decreasing it on Nov. 7 to as low as 800 and becoming the first strategist to acknowledge the possibility that stocks may fall for the rest of the year.

Still, the 20 percent rally strategists predict must overcome a deteriorating economy as the fallout from the credit crisis spreads.