NEW YORK (Reuters) -The S&P 500 will end the year only about 2.5% above its current level, with concerns over increasing inflationary risks likely to temper some of the enthusiasm for U.S. stocks this year, according to a Reuters poll of strategists.

The benchmark S&P 500 is already up nearly 12% since the end of 2020, boosted by upbeat prospects for the economy and earnings following economic stimulus and strong distribution of coronavirus vaccines.

By the end of 2021, the index will be at 4,300, a 2.5% gain from its close Monday of 4,197, according to the median forecast of 46 strategists polled by Reuters over the last two weeks.

That forecast is higher than 4,100 in the February Reuters poll, and strategists cited stronger-than-expected earnings so far this year as among reasons for bumping up 2021 forecasts.

Based on the poll, the Dow Jones industrial average will finish this year at 35,500, up about 3.2% from Monday’s close.

“There’s still some fuel left in the tank” for the stock market, said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute in St. Louis.

“A lot of folks are still coming to grips with the fact that the earnings outlook will be a lot better than was expected even as recently as a few months ago.”

Wall Street analysts now expect S&P 500 earnings to grow 35.6% in 2021, compared with a forecast of 23.3% growth at the start of the year, according to IBES data from Refinitiv.

Also, even with concerns surrounding inflation, the Fed is likely to remain accommodative “for some time,” Samana said. Wells Fargo last week raised its year-end 2021 forecast on the S&P 500 to 4,500 from 4,300.

Rising U.S. inflationary risks have spooked investors recently. High inflation raises the potential for an earlier-than-anticipated scaling back of monetary support by central banks and also for reduced corporate profit margins.

Minutes last week from the last Federal Reserve meeting suggested some policymakers were ready to talk about reducing stimulus by tapering bond purchases.

Many strategists in the poll viewed a correction in stocks over the next three months as likely, and several said they saw the U.S. stock market as overvalued at current levels.

Recent inflation concerns have prompted some investors to take profits in technology and other growth stocks that outperformed at the start of the pandemic.

Shares of banks, energy companies and other economically-sensitive names have surged since breakthroughs in COVID-19 vaccines late last year but remain favorites for 2021 among strategists.

“The question becomes how long are the legs for cyclicals. I do think they’re long enough to last for the rest of 2021,” said Kristina Hooper, chief global market strategist at Invesco in New York.

“In my base-case scenario, this is going to be a risk-on environment,” said Hooper. Her year-end target on the S&P 500 is 4,450.

(Other stories from the Reuters Q2 global stock markets poll package:)

(Reporting by Caroline Valetkevitch; additional reporting by Chuck Mikolajczak, Noel Randewich, Stephen Culp, Sinead Carew, and Alden Bentley in New York; additional polling by Swathi Nair, Manzer Hussain, and Richa RebelloEditing by Nick Zieminski. Published on May 26, 2021)

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