Will the U.S.-China Truce Boost Energy Stocks?

Oil entered a bear market in early June as U.S. inventories ballooned to a two-year high. Trade tensions between the United States and China have created a bearish environment for oil as economists worry about the potential impacts on the global economy and demand for oil.

The U.S. and China called a trade truce at the G-20 meetings over the weekend, and this generated some upward momentum for oil into the trading week. The Organization of the Petroleum Exporting Countries committed to production cuts into March 2020, which was also good for prices. However, oil slipped again to start the trading day on July 2 as economists and analysts are still concerned over falling demand.

The Horizons S&P/TSX Capped Energy ETF (TSX:HXE) was down 0.13% in early afternoon trading on July 2. The ETF has climbed 2% in 2019 so far. It seeks to replicate the performance of the S&P/TSX Capped Energy Index.

The fund has suffered two straight years of double-digit percentage declines.

Some of the top holdings in the fund include Canadian Natural Resources (TSX:CNQ), Suncor Energy (TSX:SU), and Cenovus Energy (TSX:CVE). For reference, the average bear market for oil has been 60 trading days.

This leaves much of the early summer for investors to add energy equities at a potential discount. The U.S.-China truce is encouraging, but no deal appears imminent.

This ETF is still trading at the low-end of its 52-week range. I like it as a buy to track the energy sector. Energy equities have slumped into July but are positioned to gather momentum in the second half of the year.