Standard & Poor’s annual forecast for 2005 predicts that the S&P 500 will finish the year at about the 1,300 level, up from just about 1,200, a jump of slightly more than 8%.

“The third year of the current bull market in U.S. equities is expected to provide investors with solid, if moderate, gains through 2005,” according to Standard & Poor’s. It says that the large supply of cash on hand at U.S. companies – resulting from strong recent earnings growth in particular – provides a positive backdrop for equity markets.”

“We believe that stocks should post continued gains through the end of 2005 due to several factors,” says Joseph Lisanti, editor-in-chief, S&P’s Outlook.

“The good profits posted in the current economic expansion have left U.S. Companies with large supplies of available cash, which can be put to use through mergers and acquisitions, dividend increases, and share buybacks, all of which can have positive effects on equity markets,” Lisanti says. “Companies could also allocate cash toward capital spending, and indeed S&P’s economists forecast that equipment spending will increase 10.8% year-over-year in 2005. Such spending should make a company more efficient and can therefore improve its profitability over the longer-term.”

The S&P 500 closed friday at 1,194.22.