CIBC World Markets has raised its 2006 year-end target for the S&P/TSX Composite from 12,000 to 13,200 in light of continuing strength in energy, and more recently, gold stocks.

Jeff Rubin, chief strategist at CIBC World Markets, expects the TSX energy sector to post a nearly 40% gain in 2006, following on the heels of an over 60% rise in 2005.

CIBC World Markets forecasts oil prices will average over US$70 per barrel and that natural gas prices will average US$13 per million Btu. “In a world of growing depletion of conventional energy assets, global energy firms are likely to continue to bid aggressively for oil sand assets, and in the process, bid up cash flow multiples in the energy sector,” says Rubin.

The CIBC World Markets target of 13,200 implies a 19% total return, including dividends, from the S&P/TSX composite this year, down from the 24% total return posted in 2005. However, returns are likely to remain heavily skewed toward the energy sector. Excluding energy stocks, the TSX is expected to rise by only 7%, little more than half of last year’s 13% gain.

In addition to energy, CIBC World Markets is optimistic on gold stocks, income trusts and long-term government bonds. “A forecast of a US$575 to US$600 bullion price points to another year of double-digit gains from gold stocks while continued economic growth and a further decline in long-term interest rates should support another banner year in the income trust market,” notes Rubin.

While Rubin expects two more rate hikes from the Bank of Canada, he remains positive on the outlook for long-term interest rates, expecting long Canada yields to fall by at least another 30 basis points this year. Rubin notes that while yield curve inversions have historically been associated with recessions, this year’s expected inversion is likely to signal only slower economic growth and eventual Bank of Canada rate cuts in 2007.