“Whether the U.S. economy is in recession or not, there is now sufficient evidence of market decoupling that Canadian investors need not seek an entirely defensive posture,” he said, noting that on the Toronto Stock Exchange, energy and financial stocks continue to head in opposite directions.

“We are betting that those trends will persist,” Mr. Rubin wrote in his monthly strategy outlook.

He raised his already overweight position in TSX energy stocks by one percentage point and took an equal-size cut in financials, split evenly between banks and non-banks.

Mr. Rubin's caution on financial institutions stems from his expectations of more distress in the housing sector for the balance of the year, including further price declines and likely increases in mortgage default rates, which will generate significant asset writedowns.

“By our estimates we are only about halfway through the financial losses likely to be generated from the U.S. real estate market,” he said. Global financial institutions have written down around $170-billion in subprime and related mortgage assets, roughly half of the expected $314-billion in expected losses.

Mr. Rubin maintained his overweight weighting in material stocks, including base metals and gold, on the expectation that a weaker U.S. dollar and further rate cuts from the U.S. Federal Reserve will send bullion prices to $1,100 an ounce.

“Although gold mining shares have lagged the metal itself in recent years, that seems to be changing, as bullion's gains increasingly outstrip increases in Canadian producers' costs,” Mr. Rubin said.

While some strategists believe that prices are ripe to fall, Mr. Rubin hiked his 2008 oil price target by $5 a barrel to $100 and his 2009 target to $110. He expects natural gas will reach $9.50 per million British thermal units this year and $11 next year. The high prices “will support solid earnings gains while at the same time spurring increasing M&A activity in the sector,” he said Wednesday.

According to CIBC, the S&P/TSX composite index will close the year at a new record high of 14,500.

Mr. Rubin made waves in January when he predicted that crude oil prices would hit $150 a barrel within five years. His forecast was based on the notion that while U.S. oil consumption will certainly drop in the short term, emerging economies will more than make up for the decline.

“Oil prices seem now firmly entrenched in triple-digit territory, a level from which they are unlikely to retreat materially, and natural gas prices have rallied as strong utility demand has eaten into once-bloated U.S. storage levels,” he said Wednesday.