CIBC World Markets is cutting its allocation to stocks and boosting income exposure in its recommended asset mix.

It’s also shifting its equity mix from energy stocks to financials.

In a new report, CIBC warns that, “An imploding housing market could ground the American economy over the next several quarters, prompting aggressive easing by both the Fed and the Bank of Canada to limit potential contagion effects to consumer spending.”

As a result, “We are continuing to orient our portfolio toward a falling interest rate environment, in both our overall asset allocation and sector selections within the TSX and trust market,” it says.

To that end, it is taking 2% from stocks and another 2% from income trusts and shifting that to bonds and cash. Although, that still leaves the firm overweighted in stocks and trusts, at 57% and 8%, respectively. Bonds and cash remain underweight at 33% and 2%, respectively.

“We have also added three percentage points of weighting to financial stocks, as well as one-and-half points to telecoms and another half percentage point to the dividend-rich utilities sector. In order to accommodate those moves, we are significantly reducing our exposure to natural gas stocks by scaling back our energy overweight roughly in half,” it explains.

“Given the recent string of record warm winters in North America, we do not want to be making what is essentially a weather bet. Gas stocks are still supported by expectations that prices will recover sharply over the next 4-5 months,” it says. “We remain fundamentally bullish on both oil and uranium prices, both of which we expect to set new record highs within the next 12 months.”

“We are moving our weighting from energy stocks to yield sensitive securities in expectation of 100 bps of easing from the Bank of Canada and a roughly 50-bp decline in long Canada yields over the next 12 months,” it explains. “Banks and other financial institutions are most likely beneficiaries from those rate adjustments. Adding on to the slight overweight we put on last month, we are now 4%-pts overweight the financial services sector, rivaling our overweight position in energy stocks.”

CIBC notes that in boosting its allocation to telecoms it is, “bringing our weighting in the sector back to a neutral stance and adding a half percentage point of weighting to the dividend-rich utilities sector. Lastly, we have scaled back our overweight in income trusts by two percentage points and within trusts, we have moved assets from oil and gas trusts to the more rate-sensitive REITs and power and pipe trusts.”