Whether the U.S. economy is in recession or not, there is enough evidence of market decoupling that Canadian investors need not take an entirely defensive posture, notes a new CIBC World Markets report.

“There is more than sufficient momentum in both energy and materials stocks to warrant stock market exposure in the here and now,” says Jeff Rubin, chief strategist and chief economist at CIBC World Markets in his monthly Canadian Portfolio Strategy Outlook report.

“The chasm between globally driven resource stocks and housing-tainted financial stocks grows wider by the month,” he notes, pointing to the energy-laden TSX pulling well ahead of the S&P 500. “Within the TSX, energy and financial stocks continue to head in opposite directions. We are betting that those trends will persist.”

As a result, Rubin is raising his oil price forecast by US$5 per barrel this year to an annual average of US$100, and next year’s prices to US$110. As well, Rubin is raising his natural gas price forecast to to hit US$9.50 per Mn BTUs this year and US$11 next year.

Rubin’s optimism is reflected in a one percentage point weighting increase in his model portfolio’s already overweight position in energy stocks. That increase is matched by an equal cut in financials, split evenly between banks and non-banks. The move out of financials follows further declines in U.S. housing prices, and likely increases in mortgage default rates.

Rubin remains overweight in materials stocks, including the base metals and gold components. “The U.S. economy has not contributed to demand growth for most major metals including aluminum, copper, zinc and nickel, while the Fed’s ultimate pursuit of a sub-2% federal funds rate will weaken the U.S. dollar and send gold prices to US$1,100 per ounce.”

Rubin’s portfolio remains underweight in both the consumer discretionary and telecom sectors, both of which are underperforming the broad index. Also underweight are industrial stocks.

He remains overweight in bonds, expecting another 75 basis point interest rate cut from the Bank of Canada in response to the U.S. Federal Reserve Board’s recent rate cuts and a visibly weakening Canadian manufacturing sector. He continues to be underweight cash in his portfolio.

Rubin has a year-end target of 14,500 for the S&P/TSX Composite index. His longer term target of 16,200 for year-end 2009 anticipates a stabilization of the U.S. housing market by the first quarter of next year.