You haven't missed the stock rally: Goldman's Cohen

The rally in the stock market is real and supported by the fundamentals, Goldman Sachs's Abby Joseph Cohen told CNBC on Friday.

In a "Squawk Box" interview, Cohen said short-term concerns about the automatic spending cuts notwithstanding, her models peg fair value for the S&P 500 index at 1,575 — a 4 percent premium to Thursday's close. "There are other models, including the Fed model, that show fair value as high as 1,700 or 1,750." Also Read: Goldman trims risk-taking to lowest level in seven years
During Thursday's session, the Dow Jones Industrial Average came within 15 points of its all-time closing high of 14,164 before finishing lower.
"[The rally] is supported by improving fundamentals in the US economy and, very importantly, valuation," the senior US investment strategist said. "[With] equities at a (price-to-earnings) ratio at 14 times earnings, they're just not expensive."
Cohen added: "Our sense is that there is a lot of cash on the sidelines." She advised that investors may do well to put that money to work in stocks — or to shift out of longer-term bonds into stocks, which she describes as the "better investment."
Why? Cohen expects the Federal Reserve to keep interest rates low for a long time.
She did note, however, that if interest rates rose in a "dramatic and sudden" fashion, stocks could get hurt.
But even in a rising interest rate environment, equity bull markets historically retain some strength for a while, as the market responds to an improving economy, Cohen said.