Market Recap – May 2015
The Federal Reserve's pronouncement that negative economic returns in the first quarter were transitory may be proving accurate as a few economic indicators are gaining momentum early in Q2. May began with weak economic news from the first quarter, which may have driven positive market gains with investors presuming that a weak economy would mean no imminent interest rate hike. However, as good economic news made headlines toward the end of the month, the possibility of an interest rate increase happening sooner rather than later may have prompted significant sell-offs. Nevertheless, all the major indexes closed ahead of April, led by the Nasdaq and the Russell 2000. Treasuries closed about 8 bps in front of April's closing yields.
Global markets were mixed amid frustration over whether Greece will reach an accord with its creditors, market volatility in China, and Q1 contraction in several countries' gross domestic product.
Crude oil remained around $60 per barrel--roughly the same as April. Gold closed the month at $1,190.50, about $7 an ounce ahead of April. The dollar continued its strong performance in May.
- The U.S. economy actually contracted 0.7% during 2015's first quarter, contrary to the advance estimate of plus 0.2%. That compares with a 2.2% rise in Q4 2014. Contributing factors include harsh weather, a strengthening dollar, disruptions in West Coast port operations, and lower oil prices.
- In the minutes from its May meeting, the Federal Open Market Committee (FOMC) did not see an interest rate hike for June, although the topic will now be considered at every meeting. Driven by data, a rate hike will likely depend on continued employment growth and increasing inflationary pressure. Federal Reserve Chair Janet Yellen essentially echoed the "wait and see" sentiments of the FOMC in her latest speech, confirming that the economy is still soft, but is slowly gathering momentum, likely warranting a rate hike at some point this year.
- Inflation is an important factor in determining whether (and when) the Federal Reserve will raise interest rates, and while the overall Consumer Price Index rose a seemingly scant 0.1%, core readings were up 0.3% for all items less food and energy.
- Despite the upward inflationary trend, consumer spending was effectively level in April. Advance estimates of U.S. retail and food services sales were $436.8 billion, virtually unchanged from the previous month, reflective of weakness in sales for department stores, food and beverage stores, and electronic and appliance stores.
- While not overwhelming, the employment report allowed for cautious optimism as the U.S. Bureau of Labor Statistics reported 223,000 new jobs were created in April--an increase of 138,000 new jobs compared to a weak March. But the number of employees voluntarily leaving their jobs increased by about 100,000 compared to February, possibly signaling optimism that better jobs are out there for the taking.
The Month Ahead
Investors will be watching inflation, jobs, and business production as key factors considered by the Federal Reserve in deciding whether to raise interest rates. As for the U.S. dollar, it remains to be seen if it will continue its strong showing as we enter into the summer.
Notes: The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. Market indexes listed are unmanaged and are not available for direct investment.
Portions of this market recap were provided by Forefield Financial Communications.
The performance quoted represents past performance, which does not guarantee future results. This summary represents the views of the portfolio manager as of May 31, 2015. Those views may change, and the Funds disclaim any obligation to advise investors of such changes. The Azzad Funds are self-distributed and available by prospectus only. A free copy of the prospectus, which contains information about the Funds’ risks, fees, and objectives, and other important information, is available at www.azzadfunds.com or by calling 888.350.3369. The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks measuring the performance of those Russell mid-cap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth index. The Dow Jones Sukuk Index is designed to track the performance of global Islamic fixed-income securities, also known as Sukuk. The index includes U.S. dollar-denominated, investment-grade Sukuk that have been screened for Shari’ah compliance.