With both the bond and equity markets facing headwinds due to the uncertainty surrounding the timing of U.S. interest rate hikes, CIBC World Markets says it is time for investors to stock up on cash.

“Neither the equity market nor the bond market has much breathing room until the threat of rapid-fire Fed tightening recedes. That’s not likely to happen in the near term, as financial markets digest healthy second quarter economic numbers from the U.S. and a temporary lift in inflation. As a result we’ve raised our cash position to slightly above index weight at the expense of both bonds and stocks,” says the firm’s chief economist, Jeff Rubin, in the firm’s Canadian Portfolio Strategy Outlook for June.

“We remain overweight bonds relative to stocks, given that the bond market has already paid for multiple Fed rate hikes,” Rubin says. “Within our stock portfolio we have increased our energy overweight, with seasonal demand likely to drive oil and gas prices higher. Bonds and energy stocks are also an effective hedge against Mid-East terrorist risks to the market.”

The firm is also maintaining an overweight stance on the mining sectors, both base and precious metals, and biotechs, along with energy names. “Expectations of an economic recovery in the western economies, increasing world demand for oil, and continued upward movement in gold prices bode well for the Oil & Gas and Mining sectors. The defensive growth profile of the pharmaceutical services, healthcare services, and specialty pharma sub-sectors accounts for our overweighting Biotech & Health,” the report notes.

Larry Berman, CIBC’s technical strategist, remains a longer-term bear. Although, he says he believes the recent rise in yields is the worst we are likely to see in the next few months. He sees the TSX in an 8,000-8,500 range for the next few months and recommends trading it accordingly. At 8,400, he dropped his long equity exposure back to the index level and will use a dip towards 8,000 to put his cash back into the market.