What Could Cause Market Volatility in the coming Weeks?

Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), has gained an impressive 14.5% since the start of the year, mostly due to gains from financial sector stocks.

This mirrors the good performance that the S&P500, a major US stock market benchmark, has seen as well, with a year-to-date return of 10%. The S&P500’s return comes off a solid performance from the tech sector.

But, some market commentators have said that there could be volatility in the markets ahead due to developments in global events that could rattle investors’ confidence. Here are some of these events.

Instability in the Middle East

The ongoing diplomatic dispute between Qatar and its neighbours has already shaken investor confidence in Qatar. If the parties involved are unable to resolve the issue, investors worldwide may start to get cold feet.

In June, the Gulf Arab states that are unhappy with Qatar had sent a list of 13 demands to the country. Qatar, however, refused to be pressured into accepting the demands of its neighbours that its sees as being unfavourable. The latest development in this issue is that Qatar’s neighbours have now modified their demands.

This ongoing dispute can have ripple effects across Europe and in the US as Qatar is a key ally in the fight against Islamic State and hosts al-Udaid, the largest US air base in the Middle East.

Another reason why the Qatar incident could affect stock markets around the world is that the country is one of the richest in the world, with strategic investments worldwide that are estimated to be US$335 billion. These investments could be at risk if things go awry.

Public confidence in President Trump

President Donald Trump has proven to be a hit on Wall Street. Since his inauguration, US stocks have rallied to record highs, and valuations are becoming stretched. Part of the rally has been based on speculation that Trump’s policies will come into play in the future and boost the US economy.

As Trump’s tenure as president matures, it is yet to be seen whether his policies will actually materialise, and if they will positively affect businesses in the US and abroad.

The North Korea conflict

North Korea has been making the headlines in recent years since Kim Jung Un became president. The headlines include the reclusive state’s testing of inter-continental missiles that can reach Hawaii or Alaska, and the tragic death of Otto Warmbier, an American student who died shortly after being released by North Korea in a coma.

The tension with North Korea is rising, and the US has taken the initiative to get China to handle North Korea through diplomatic reasoning. But, it is still uncertain how this situation will play out in the coming weeks or even years.

The Foolish Bottom Line

Volatility is part and parcel of the stock market. The events listed above could have an impact on the near-term stock price movements of listed companies, but they may end up having little to no long-term effect on the businesses of the listed companies.

If you’re a long-term investor, you should be aware of any global developments that can impact your investments. But at the same time, we should know that as long as the incidents do not have any lasting impact on the businesses we’re invested in, short-term stock price volatility should be noted, but not acted on.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned.