CIBC World Markets says that it is staying slightly underweight in equities, until the rate picture looks a little clearer.

“Earnings reports haven’t really been that bad, but the equity market has been held in check by worries on other fronts, including a spot of weakness in the U.S. economy in June data, and the threat of high energy prices and rising interest rates on earnings gains ahead,” CIBC says in a new report.

It notes that a maturing earnings cycle, with slower but still positive growth in the bottom line, does not typically mark the start of a true bear market. And, it suggests that, after a soft month, stocks are starting to look more interesting on a value basis. “But what investors need to push TSX prices higher again is more comfort about the extent to which interest rates will have to rise to contain inflation,” it cautions. “That’s not likely to be in evidence until we see more sustained signs of a moderation in U.S. growth, and a topping out in North American core inflation. Until then, which might not be until Q4, we’re staying with our somewhat underweight position in equities, and an overweight in cash and bonds.”

Within the equity market, CIBC has been significantly overweight in energy. And, it’s sticking with it. “While profit taking is tempting, the sector is still too valuable as a portfolio hedge against a Mideast shock,” it says. “We have positioned the rest of the portfolio defensively, with overweights in consumer staples and health care, both of which are less sensitive to growth or interest rate fears, and in telecoms, where the dividend potential looks attractive,” it notes.

It also reports that its technical analyst is not expecting a bottom in equities until October, and seeing positive signals for energy and telecoms.