Cenovus, Encana spark Canada’s best month since July 2016

Encana Corp. and Cenovus Energy Inc. led Canadian stocks to their biggest monthly rise since July last year and analysts see more gains to come as oil moves higher and the economy posts its fastest growth in six years.

The 2.8-per-cent jump in September marks a reversal for the S&P/TSX Composite Index, which has lagged most of the developed world this year amid a slump in energy stocks.

Even with last month’s gain, it’s still the third-worst performer among 24 developed market gauges tracked by Bloomberg, with a return of just 2.3 per cent this year.

The S&P/TSX rallied in tandem with crude prices that had their biggest quarterly gain in more than a year, boosting oilpatch companies like Trican Well Service Ltd. and Precision Drilling Corp. Oil prices rose as U.S. refineries recovered from the effects of hurricane Harvey, while OPEC and the International Energy Agency boosted demand forecasts.

Analysts have long said that a recovery in oil would be necessary for the underperforming TSX to rebound.

Most strategists believe the index is poised for more gains as higher oil and economic growth topping three per cent should offset concerns about rising interest rates.

A pullback in the dollar may also give stocks a lift.

The loonie was little changed last month, after soaring almost eight per cent on the year versus the U.S. currency.

On whether the Canadian stock gains can last, Brian Belski, chief investment strategist at BMO Capital Markets, says there’s no need to worry about the rising loonie. In fact, BMO’s research shows that in years when the dollar has appreciated in the first eight months of the year, the TSX has rallied over the next six months.

The same goes for rising interest rates. Belski believes there is “excess pessimism priced into Canadian equities and a rebound in TSX performance is overdue.”