The Dow inched marginally upward during a holiday shortened week. Brexit fears returned to spook investors, weighing on bank stocks and oil prices. Crude prices were also weighed down by unfavorable crude inventories data. However, strong indications that interest rates would remain low in the near term provided investors with some respite. Data on services and private sector employment were also encouraging in nature. The Dow has gained 0.2% over the first three trading days of the week.

Last Week’s Performance

The index moved up by only 0.1% on Friday, but gained more than 3% over last week, riding on the rebound which followed the losses resulting from Brexit. Strong gains for three successive days helped the index post its highest weekly gain for the year. However, trading volumes were at their lowest since Jun 23. 

The Dow increased 0.8% in June. Investors remained cautious for most of the month over a possible exit of the U.K. from the European Union. An unanticipated Brexit led the key indexes to deliver a sluggish performance. Moreover, Fed’s reluctance to hike rates raised doubts about the strength of the domestic economy. May’s discouraging jobs report, a low level of business investment and lower-than-expected inflation did little to help the Fed take a rate hike call.

The index gained 1.9% over the last quarter. Energy stocks were the biggest gainer during the quarter, while tech stocks were the biggest laggards. Oil prices posted quarterly gains due to a weaker dollar, a fall in the U.S. rig count, rise in gasoline consumption and worldwide outages.

The Dow This Week

Markets were closed on Monday because of the 4th of July holiday. The index lost 0.6%, snapping a four session winning streak to finish in the red on Tuesday following renewed “Brexit” fears. Uncertainties over “Brexit” had raised global growth worries following which oil prices declined and bank stocks tumbled.

Oil prices fell following worries that global economic slowdown might hamper crude demand amid abundant supply of oil. Moreover, reports showed that crude inventories in the delivery hub of Cushing, Oklahoma have increased by 230,025 barrels for the week ended Jul 1.

Speculation that weak global growth concerns may prolong the prevalence of a low interest rate environment throughout the globe, which in turn may negatively impact the financial sector, led to losses for banking stocks. Separately, safe-haven investment options like government bonds attracted investor attention in this uncertain scenario.

The index increased 0.4% on Wednesday after the FOMC minutes from the June meeting showed that most of the Fed policymakers were in favor of keeping rates unchanged. Investors shed “Brexit” fears after FOMC minutes of Jun 14-15’s policy meeting indicated that most of the Fed policymakers decided to keep the rate unchanged. Moreover, the minutes highlighted that another reason for not hiking rates was policymakers’ decision to wait for the British referendum’s results.

The ISM Services Index advanced from 52.9% in May to 56.5% in June, its best rise in the last seven months. Also, the reading was more than the consensus estimate of 53.3%. As per Markit, the final services PMI increased from 51.3 in May to 51.4 in June.

Gains in biotech stocks also pushed key U.S. indexes northward. Additionally, a rally in oil prices boosted investor sentiment. Oil prices rose after API reported a wider-than-expected decline in crude inventories. According to the report, crude inventories decreased by 6.7 million barrels to 520.9 million for the week ended Jul 1, wider than analysts' projections of a 2.3 million barrel decline.

The index lost 0.1% on Thursday following a fall in crude prices. Oil prices fell yesterday after the U.S. Energy Information Administration (EIA) reported a lower-than-expected decline in crude inventories. EIA reported that the U.S. commercial crude oil inventories fell 2.2 million barrels to 524.4 million for the week ended Jul 1. It was narrower than analysts’ forecasts of a decrease of 2.3 million barrels.

According to the EIA report, motor gasoline inventories fell only 122,000 barrels last week, also narrower than analysts’ forecasts 353,000 barrels. WTI crude fell 5.1% to $45.14 per barrel, falling below the resistance level of $46 a barrel and reaching its lowest settlement since May 10.

A report from Automatic Data Processing, Inc. revealed that private sector employers added 172,000 jobs in June, which was higher than May’s revised figure of 168,000. Additionally, initial claims remained below 300,000 for the 70th consecutive week, its longest stretch since 1973.

Components Moving the Index

Chevron Corporation (CVX Quick QuoteCVX - Free Report) and Exxon Mobil Corporation (XOM Quick QuoteXOM - Free Report) , along with their partners, announced plans to invest around $36.8 billion to boost oil output in a Kazakhstan oil field. Tengizchevroil will continue with the development of its Future Growth and Wellhead Pressure Management Project.

Chevron owns 50% of the entity, while 25%, 20% and 5% are held by Exxon, Kazakhstan's KazMunayGas and Russia's Lukoil, respectively. The project is expected to bolster production in the Tengiz oil field by 260,000 barrels per day.

Upon completion, the oil field is expected to generate about 1 million barrels of oil per day, with the first oil production planned for 2022. Tengizchevroil will spend $27.1 billion in facilities, $3.5 billion in wells and $6.2 billion for contingency and escalation (read: Chevron, Exxon Mobil to Invest in Tengiz Expansion Project).

The Walt Disney Company (DIS Quick QuoteDIS - Free Report) is all set to purchase a one-third stake in Major League Baseball’s (“MLB”) video streaming division, MLB Advanced Media, according to Bloomberg. Sources expect the deal to be valued at nearly $3.5 billion.

MLB Advanced Media, which was founded in the year 2000, is engaged in various online services like digital ticketing, live streams, and sponsorships. Jointly controlled by 30 baseball teams, MLB Advanced Media already monitors video streaming for WatchESPN. This allows television viewers to watch live telecasts and other programs using the Internet.

According to the deal, Disney will receive a four-year option to acquire an additional one-third stake in MLB Advanced Media’s streaming-video unit. Notably, WME-IMG was also among the bidders for the aforementioned stake (read: Disney to Acquire Stake in MLB Advanced Media for $3.5B).

Cisco Systems, Inc. (CSCO Quick QuoteCSCO - Free Report) and International Business Machines Corporation (IBM Quick QuoteIBM - Free Report) recently announced a partnership which aims at integrating Cisco Spark and WebEx platforms with IBM's cloud collaboration solutions that include Verse and Connections.

This means that Cisco’s collaboration solutions - business messaging, meeting and calling offerings - will merge with IBM's advanced analytics, Watson, and email and social offerings, leading to the emergence of a new class of cloud-based workplace solutions. These new solutions will streamline workplace data collection and analysis and make it happen on offline systems as well.

Businesses placed in remote locations like mines and oil rigs where there is no cloud connectivity can now make use of Watson running on Cisco’s gateway gear to gather, monitor and analyze data without Internet connection(read: Cisco (CSCO Quick QuoteCSCO - Free Report) & IBM Come Together for Workplace Solutions).

JPMorgan Chase & Co. (JPM Quick QuoteJPM - Free Report) is all set to open three more branches in India. The move comes even as most foreign banks are contracting their operations in the country due to regulatory concerns. It has already won the Reserve Bank of India’s approval for this expansion.

The branches – one each in New Delhi, Bengaluru and Chennai – are expected to be operational in the next few months. All of JPMorgan’s existing products and services, including cash management, trade finance, foreign-currency payments and lending services, are expected to be available in the new branches (read: JPMorgan (JPM Quick QuoteJPM - Free Report) Goes Against the Herd to Expand in India).

Merck & Co. Inc. (MRK Quick QuoteMRK - Free Report) announced that it will acquire a controlling interest in Vallée S.A., a Brazil-based privately held producer of animal health products.

Under the terms, Merck’s animal health business will acquire 93% of Vallée’s shares for $400 million, based on current exchange rates. The transaction is subject to regulatory review and closing conditions. However, Merck has not announced a closing date for the deal.

Under this deal, Vallée’s extensive product portfolio, consisting of over 100 products across parasiticides, anti-infectives and vaccines, for livestock, horses, and companion animals, will be integrated with Merck’s animal-health segment.

The acquisition will strengthen Merck’s presence in Latin America and help to respond more quickly and effectively to the region’s needs (read: Merck to Acquire Brazilian Animal Health Company for $400M).

Microsoft Corporation (MSFT Quick QuoteMSFT - Free Report) has announced a partnership with a U.S. based biotech company, Monsanto Company , in a bid to invest in Brazilian agricultural technology startups.

Monsanto is reportedly expected to join forces with a Brazilian investment fund with a corpus of 300 million reais ($92 million). The fund will be managed by Microsoft. The objective of the partnership would be to evaluate feasible innovative ideas for new digital tools that could be applied to augment agricultural production in the country.

An initial funding of up to 1.5 million reais ($459,000) would be granted to selected ideas for facilitating early development. On the other hand, the project owners can choose to either pay back the investment after three years or convert the money into equity (read: Microsoft/Monsanto to Invest in Brazilian Agrotech Startups).

Performance of the Top 10 Dow Companies

The table given below shows the price movements of the 10 largest components of the Dow, which is a price weighted index, over the last five days and during the last six months. Over the last five trading days, the Dow has gained 0.9%.

Next Week’s Outlook

The ADP report has provided sufficient cause for optimism. Investors will now examine today’s non-farm payroll numbers carefully for indications about the state of the economy as well as the path of interest rates in the near future. This is the only economic report of particular significance scheduled for release until next Friday.

What is of particular interest is whether concerns about Brexit will continue to play a key role in determining market movement. Given the return of these concerns after a rebound last week, it is unlikely that investors will be rid of these fears in the immediate future.

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