CIBC World Markets has raised its target for the S&P/TSX composite index in 2005, and is overweighting energy, financial, telecom and utility stocks.

In its Canadian Portfolio Strategy for January, CIBC WM raised its target for the TSX to 10,000, with leadership expected from both energy and high dividend stocks such as financials, telecoms and utilities.

“Low interest rates, a retreating Canadian dollar, and the prospect of stock market-friendly legislation in the US (pension and tort reform) all suggest another positive year for North American equity markets,” it says.

As a result, it is three percentage points overweight stocks at the expense of cash, expecting a 10% total return from the TSX this year. “Equity returns should once again beat bonds, but bonds nevertheless should significantly outperform cash, warranting an overweight at the latter’s expense,” it adds. And, “With bond yields expected to fall this year income trusts should once again outperform stocks.”

“While the Federal Reserve Board may have not yet finished tightening, there is much to suggest that the Bank of Canada has. Not only is an 82-cent Canadian dollar much higher than the Bank would like, but there is increasing evidence the exchange rate is taking a toll on factory jobs,” CIBC says. “Without the threat of further rate hikes, today’s very steep yield curve should flatten over the year, with long bonds generating handsome returns.”

Earlier this week, National Bank Financial slashed its forecast for the TSX benchmark index from 9,500 to 8,600.