Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of offshore drilling giant Transocean (NYSE:RIG) surged as much as 10% late in trading Wednesday after oil prices surged to over $45 per barrel late in trading. Shares of competitors Seadrill (NYSE:SDRL) and Ensco (NYSE:ESV) rose around 7% but Transocean led the industry today.
So what: The Federal Reserve's two-day meeting ended today without a rate change, which wasn't a surprise, but the Fed did say they were concerned about the economy, unemployment, and inflation and wanted to make sure all three were improving before increasing interest rates. The Fed never tells exactly what it expects to happen with rates, but the market took Chair Janet Yellen's comments to mean that rates would stay low longer than it had previously anticipated.
The result of that assumption was a falling dollar, rising oil prices, and a surge in offshore drilling stocks. None of today's events indicate that demand for oil will rise above the currently oversupplied market but since oil is priced in dollars a falling dollar means oil prices will rise in turn.
Now what: While today has been great for offshore drilling stocks I wouldn't bet too much on a near-term recovery. Today's move was more a function of speculation after a Fed meeting than it was fundamental changes in the market.
The U.S. is still overflowing with oil, OPEC isn't cutting production, and there's no improvement in the offshore drilling market in sight. I'm bullish on offshore drilling over a 2-5 year horizon, but until the market fundamentals improve I would be cautious buying offshore drilling stocks and certainly wouldn't be a buyer on today's speculative, currency-fueled move.