Canadian investors should consider taking some profits and looking to the U.S. and Europe for better buying opportunities, says Clément Gignac, chief economist and senior vice-president and strategist at National Bank Financial.

Gignac noted in a Webcast Tuesday that Canadian companies are likely reporting peak profits and that “you should never buy peak profits”. He’s calling for the S&P/TSX composite index to retreat to the 9200 level by June 2006, from its current level of almost 10000.

Canadian stocks have been riding the strong gains in oil prices over the past couple of years, but that does not appear to be sustainable. Gignac suggests that Canadian stocks could be in a “lose-lose situation” on oil prices — if prices trend higher, the world economy will likely slow down; if they go lower, the rest of the world will benefit but Canadian profits will suffer.

Either way, he suggests that investors sell energy stocks on strength, and that there’s a better risk/reward bargain available in the US. Furthermore, Europe could rebound if the European Central Bank decides to cut rates to help growth and economies there continue to restructure.

Interest rates in the U.S and Canada are likely heading higher, however. Gignac suggests that the Bank of Canada will resume rate hikes in the fall, taking the bank rate to the 3.5%-3.75% level by next June. This may bring some pain to the interest-sensitive energy trusts, he noted.

“Investors should not let the exceptional performance of income trusts over the last three years — a performance stimulated by the decline of long rates — obscure the fact that these are equities and not fixed-income securities,” Gignac notes. “Also, distributions from oil and gas trusts have been buoyed by soaring oil prices over the last two years. Though income trusts are an indispensable tool of any good asset-mix strategy, investors would be well advised to avoid undue concentration in these instruments given the less liquid nature of some of them.”

The Federal Reserve in the U.S. is also expected to stay on a tightening track, pushing its key rate to 4.5% by next June.

The big question is how hard this will hit the booming U.S housing market, which some suggest has entered bubble territory. Gignac says that the housing boom is helping to keep U.S. consumer spending alive.