After a short-lived correction, energy and materials stocks have already recovered much of the ground lost in the recent panic attack about U.S. interest rates. They are poised to set new highs in the months ahead, according to a CIBC World Markets report released today.

Projected new record high oil prices and record high valuations in the energy sector, along with still bristling global economic growth will keep base metals markets tight, noted Jeff Rubin, chief strategist, CIBC World Markets, in this month’s CIBC World Markets Canadian Portfolio Outlook Report.

As energy and metals recoup their recent losses and are expected to post new highs this year, the S&P/TSX composite is poised to do the same. CIBC World Markets remains committed to its 13,600 S&P/TSX composite target for year-end 2006, led by a further 25% gain in energy stocks over the balance of the year. The portfolio remains ten percentage points overweight stocks, at the expense of a zero cash weighting and an underweight in bonds.

While the outlook is bright for energy and metals stocks, CIBC World Markets recommends underweighting consumer stocks, as consumer purchasing power is increasingly squeezed by rising energy bills and interest payments. The portfolio is also underweight telecom and info-tech stocks.

“Our top three picks – energy, materials and industrials – rank as the top three in terms of year-to-date performance in the TSX, the principal reason why our equity portfolio has built up a 112-basis-point outperformance of the TSX benchmark over the first six months of the year,” said Rubin. “With an 8.5-percentage-point overweight in energy stocks and a 2.5-percentage-point overweight in materials stocks, we expect to double that outperformance over the balance of the year as the recently beaten cyclicals come roaring back.”

The report also notes that total returns from the income trust sector are besting the S&P/TSX composite by over 200 basis points in the first half of the year, justifying the double-weighting of this asset class.

The CIBC World Markets Canadian Portfolio Strategy Outlook report is available at http://research.cibcwm.com/economic_public/download/psjul06.pdf.