Backed up by evidence fickle investors will soon switch their attention away from oil prices, National Bank Financial Inc. is shifting the sector weights in its model portfolio.

In a new research report, NBF notes that stocks have been weak since oil prices started heading higher. However, the brokerage firm says that a high correlation between oil and stock prices has rarely lasted very long.

“After a period of fixation on oil, investor focus tends to switch to other fundamentals such as the state of the economy or corporate earnings, and the market then usually goes up.” This is what NBF expects to happen this time too. “Excluding oil, market fundamentals are still intact. Valuation, earnings growth and earnings revisions still point to a rally,” it says.

“Earnings have now been revised upward for 15 straight months in the U.S. and 12 months in Canada, a record string in both cases.” As a result, NBF says it is keeping its 12-month targets unchanged on both sides of the border at 1225 for the S&P 500 and 9200 for the S&P/TSX.

However, the firm is downgrading the energy sector to market weight from the overweight recommendation put in place at the beginning of the year. Conversely, it’s upgrading the transportation industry to overweight, since the sector has recently suffered from higher fuel costs. It has also removed its underweight recommendation on aerospace.

On the bond side, NBF says that it is are rebalancing its sector exposure, reducing corporate bonds in favour of provincials but maintaining an overweight in Canada’s.

NBF still expects the U.S. Federal Reserve to raise rates in September and November, despite the recent soft patch in the U.S. economy. It adds that the Bank of Canada is also likely to be active raising rates.

NBF says that equities seem to have endorsed the Fed’s view of a temporary soft patch while the bond market remains more skeptical. “Indeed as of yesterday, cyclical stocks, measured by the iShare index fund, had gained 4.4% since August 12 while 10-year Treasuries had been trading side ways around 4.2%. With 10-year yields now around 4.1%, this week’s non-farm payroll could end up being quite a market mover,” it notes.