What Could Cause Market Volatility in the Coming Months?

The stock market is extremely volatile as investors react hastily to world news and short-term traders move in and out of the market. As long-term investors, we should ensure we are well versed in what can cause market volatility but at the same time, ensure we do not make any hasty decisions regarding our investments.

With this in mind, I have listed some events that could cause market volatility in the next few months.

Interest rate hikes

Late in September, the Federal Reserve said it plans to increase interest rates once more before the end of the year. It also reported further plans to raise rates in 2018 and 2019.

As most of us know, interest rates and stock market valuations should be inversely related, meaning as interest rates rise, stocks, in theory, should depreciate.

In Singapore, interest rates have also risen in the past few years, starting from just 0.25% in 2012, and steadily increasing to 0.88% in 2016.

News of interest rate hikes can sometimes cause investors to shift investments away from stocks to assets that can potentially provide higher yields, affecting stock market prices in the process.

Threat of North Korea

The North Korea threat has been ongoing for the past year. With Kim Jung Un testing missiles and unleashing a series of threats against the United States, it seems that the likelihood of a nuclear war is more real than ever.

Even eternal optimist Warren Buffett said in an interview that the one thing that scares him the most is the threat of a nuclear war.

Thankfully, markets have not reacted negatively yet, but the slightest inkling of increasing tensions and the reality of war might spark major sell-offs in the market and cause widespread panic to investors

Oil and gas outlook

Singapore’s position as home to the two largest rig-building companies in the world, make it susceptible to any changes in the oil and gas sector. The crash in oil prices in 2014 was partly the cause of the beating the Straits Times Index (SGX: ^STI) took. The two major rig-builders suffered major downturns. The financial sector, which also has significant exposure to the oil and gas industry, was likewise beaten down.

According to a rating agency, the growth in the oil and gas industry is once again likely to decelerate over the next year. This could cause volatility in the Singapore market again.

The Foolish bottom line

Some of the events listed above can have short-term impacts on the profitability of certain companies but may not have any effect over the longer term. Investors need to be aware of these events but not react hastily unless we have reason to believe the long-term theses of our investments have been compromised.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.