The Standard & Poor's 500 Index will probably be 20% to 30% higher by the end of the year, perhaps more, and U.S. financials will likely offer the greatest return over the next two years, Bill Miller, chairman and chief investment officer at Legg Mason Capital Management, said Wednesday.

He put the S&P 500 at 1100 or 1200 at year's end. The index closed at 919.53 Wednesday.

Miller, who made his comments at the opening of the Investment Company Institute's annual meeting in Washington, D.C., was sounding quite optimistic for someone whose track record has suffered badly over the past few years.

But, that too, he said, will pass. Noting that he's had only one other extended period of underperformance, Miller said, "We have tended to come back very fast from bad markets."

The market tends to lead the economy, so those who look at the economy and say it's not doing well so the market isn't going to do well have it backwards, he said.

Unlike previous corrections, which have tended to be inventory related, this is an asset crisis, he said. Housing prices will stabilize this year, which will help with pricing of mortgage-backed securities, and as the market rises, it will create wealth on its own, which will lead to consumer spending, Miller said.

Abby Joseph Cohen, senior investment strategist and president, Global Markets Institute at Goldman Sachs & Co., who spoke on a panel with Miller at the ICI conference, said she expects the S&P 500 to close out the year at about 1050. Valuations are still quite compelling, she said, which will encourage money to come into the markets. In addition, the very low returns on very safe fixed-income instruments will nudge investors to once again embrace some risk, Cohen said.

Miller said growth in the U.S. gross domestic product could "squeak into positive territory" in the third quarter, and could be 3% in the fourth quarter.

As for news surrounding the stress tests of banks, the markets appear to be shrugging off it off, "which I think is a good thing," Miller said. Thinking about banks has become divided into two camps, with "the forces of light" on one side, and those who feel banks should somehow be nationalized on the other, he said. Miller places himself in the former camp, he said jokingly. "The fact that they (markets) have been rising into the stress tests, shows that the market believes it isn't going to show significant capital shortfalls that have to be met."

Among financials, Miller currently likes Wells Fargo (WFC), Capital One Financial Corp. (COF), American Express Co. (AXP) and in the broader insurance area, Aflac Inc. (AFL) and Prudential Financial Inc. (PRU).

Looking at the overall equity market, "everything is on sale," Miller said. But he finds two parts of the equity market very attractive, he said - large, quality companies, and those for which the risk is not as great as some investors had originally thought. High-quality, large and growing companies, such as Hewlett Packard Co. (HPQ) and Microsoft Corp. (MSFT), can be purchased at good valuations, he said.

In addition, there's value to be found in companies where investors had perceived risk, but realize that that risk isn't as great as they had expected, he said. Casino companies, are one example, he said. MGM Mirage Inc. (MGM) is overleveraged, but "has the best set of assets on the strip," and a great management team, Miller said.

-By Daisy Maxey; Dow Jones Newswires; 201 938 4048; daisy.maxey@dowjones.com