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."

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 U.S. economy and, very importantly, valuation," the senior U.S. 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.

By CNBC's Matthew J. Belvedere; Follow him on Twitter @Matt_SquawkCNBC