Has the stock market’s optimism faded?

The fragility of the ceasefire in the Gaza Strip impacted trading on the Tel Aviv Stock Exchange yesterday, and after the breach of the ceasefire by Hamas and Israel’s tough response, the falls deepened towards the close. The Tel Aviv 35 Index closed 0.93% off. The falls were across most sectors, without large differences between them. The Oil and Gas Index and the Real Estate Index fell the most, each shedding 1.5%.

Perhaps surprisingly, the local stock market has been in the doldrums since the ceasefire agreement came into effect on October 10. The Tel Aviv 125 Index has fallen by 2.2%, while on Wall Street the S&P 500 Index has risen by 3.3% over the period.

Yaniv Pagot, head of Trading, Indexes and Derivatives at the Tel Aviv Stock Exchange, says, “The negative trend on the exchange contrasts with the optimism seen in the US. It can be assumed that the trend is largely due to news about hostages’ remains. No investor wants to see the fighting resumed, and the whole public expects all the hostages to come home.

“This leads to jumpiness on the stock market. After the surge in Tel Aviv in previous weeks and the massive entry of new money, investors are waiting for positive political news and for an interest rate cut in Israel”

“No real drama”

Mizrahi Tefahot Bank chief markets economist Ronen Menachem is not surprised. “It seems to me that one should not be surprised at the falls,” he said yesterday. “They mainly indicate the volatility that you would expect in the interim period of the second stage of the talks. The market is sensitive just now. Both local and foreign investors are constructing their scenarios on the basis of the assumption that the diplomatic process will move forward, but by the same token everyone is being cautious, and is aware that the dynamic will be tricky, and we will still see volatility on the markets as a result of events such as those of today.”

Is there cause for alarm?

“No. If you look at the economic figures, you will see that they are strong, and they will continue to be so.”

More Mutual Funds CEO and chief investment officer Yotav Costica also thinks that there is no great drama here. “The market doesn’t like it, and we have been seeing news like this for a while, but when you analyze things in depth, the stock market has been capable of working well even in much more intense periods. It’s something that will continue to be with us, and there’s no need to feel under pressure.

“On the whole, since the ceasefire, the stock market has not responded as strongly as was expected. In general, it’s pretty much marking time. There are slight rises, but it should be remembered that Israel has been at war for two years, and so the effect on investors of these incidents is limited. It could delay things like a credit rating upgrade, or have an impact on foreign investors.”

Interest rate cut fairly certain

At the end of November, the Bank of Israel will announce its next interest rate decision. Most analysts believe that the central bank’s interest rate will be cut, and that in a year’s time it will be 3.5%, versus 4.5% today. Will the security flare-up affect the Bank of Israel’s decision?

“The latest incident will not by itself affect the Bank of Israel’s interest rate decision. The bank makes its decisions on the basis of a wide range of data,” says Menachem. “The expected interest rate cut in the US tomorrow will make things easier, if it happens, for the Bank of Israel to consider an interest rate cut here, on the assumption that events like those of today are contained.”

“It won’t affect the interest rate,” says Costica. “In my opinion, the interest rate will be lowered in the next decision. On the whole, things are much calmer.”

Menachem cautions, however, that investors should keep their fingers on the pulse. “The market has come a long way, and most sectors have risen nicely – real estate, insurance, banking, almost everything – and so one should expect a more sensitive period. Only some extraordinary development will cause a change, otherwise the general trend is positive.”

Published by Globes, Israel business news – en.globes.co.il – on October 29, 2025.

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