The worst period for Canadian equity returns in generations may already be over, but recovery will depend on whether North America launches a credible fiscal stimulus package in the coming weeks, notes a new CIBC World Markets report.

“The bad news is that we are in a recession, and a fairly deep one at that. The good news is that the stock market has already discounted a depression,” Jeff Rubin, CIBC World Markets chief economist and chief strategist, said in his latest Canadian Portfolio Strategy Outlook Report.

The report predicted that with deep interest rate cuts and fiscal stimulus efforts underway in most of the world’s major economies, global growth would likely return by the second half of 2009, spurring on the TSX composite index.

While progress is expected in the next two quarters, the majority of the climb, Rubin said, will come after a mid-year economic upturn. For that reason, he remains market-weight on equities in his model portfolio.

Given the uncertain timing of an economic recovery, Rubin’s recommended portfolio weights continue to steer away from the sectors most exposed to downside economic risks, with overweights in some of the traditional safe havens, like utilities and consumer staples.

Compared to the United States, Canadian wealth losses have been mild, but housing values are still in retreat and consumers will be cautious on big-ticket spending. As a result, Rubin is recommending heavy underweights in equities tied to consumer discretionary spending and autos.

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As a result of more realistic valuations in the technology sector, he no longer suggests as heavy an “underweight” stance and has added a percentage point of exposure. That move was funded by a single point reduction in his already underweight position in industrials.

When it comes to commodities, Rubin notes non-precious metals and lumber are still mired in recessionary conditions, and base metals will post much lower average prices in 2009. He continues, however, to favour gold as a hedge against an eventual return of both inflation and U.S. dollar depreciation.

As for oil, the seeds are being sown for a sharp rebound in crude prices during the next global recovery with a taste of that to come in late 2009. Rubin expects it won’t be very far down the road of an economic recovery before oil prices once again touch triple-digits. “And when they do, our overweight in oil stocks will be there to reap the rewards.”

Filed by Steven Lamb,, is the sister site to, focusing on the needs of the financial advisor serving the retail investor.

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