If anyone thought that after an almost linear rise in the past two years, and an astonishing 100% return on the main indices in that time, that the Tel Aviv Stock Exchange would stop, the first six weeks of 2026 should make them think again.
So far this year, the Tel Aviv Stock Exchange has given one of the best returns in the world, and it is breaking records almost daily. The Tel Aviv 35 Index has risen by more than 15% since the start of the year, and has broken its own record sixteen times (which is more than the historical annual average) and is within touching distance of 4,200 points.
Meanwhile, the leading indices in the US have been much less bullish. So far this year the S&P 500 Index has risen by just 1.7%, and the Nasdaq 100 is flat. The Dow Jones Industrials Average stands out favorably, with a rise of 4.3%, while in the UK the FTSE 100 Index has risen by 4%.
The rises on the Tel Aviv Stock Exchange have been led by the “usual suspects” that powered the indices upwards in the past two years as well: The Tel Aviv Insurance and Tel Aviv Defense indices have jumped 24%, while the banks are not far behind, with a rise of more than 15%.
Largest stocks are the leaders
“It’s interesting to see that the stocks that are rising the most are the most liquid ones that are on the flagship Tel Aviv 35 Index list, such as the banks and the insurance companies,” observes Eran Pasternak, chairperson of investment house Pasternak Shoham. “It’s not a categorical rise, in which the whole market rises together, but rather the top tier stocks are pulling the market upwards. The Tel Aviv 90 Index has risen by ‘only’ 7.2%, because these are less liquid stocks.
“Everyone has suddenly discovered Israel. The Israeli stock market is small by global standards, and is even small in relation to the size of the Israeli economy, and so it is impacted very quickly,” Pasternak says.
Paternal lists three factors lying behind the rise. The first is foreign capital that has rediscovered Israel. “Foreign investors have all-time record holdings on the Tel Aviv Stock Exchange – 20% of the shares. Such a thing has never happened before. In part this is technical and stems from the adjustment in trading days to match Wall Street, which opens a door that was previously shut for foreign index funds. They are starting to adapt, and this can be seen in the flow of foreign money.”
The second factor according to Pasternak is the Israeli public. “The Israelis have invested all-time record amounts in the mutual funds industry, which is approaching NIS 750 billion. The Israeli public is voting with its feet and coming into the capital market in huge amounts.”
The third factor is the financial institutions. “The pension funds and insurance companies, which reduced their exposure to the local stock market in the period of the judicial overhaul and the war, are now coming back,” Pasternak says. “As soon as the scales tilted towards Israel again, they increased their holdings here. It’s enough for their local holdings to grow by 2%, out of the trillions of shekels that they manage, together with the small size our stock market, for the market to soar.”
Money flowing from all directions
Kobi Segev, co-founder and managing partner of Achord Investment Management, agrees. “There’s a continual flow of money from conservative instruments – money market funds for example – to instruments that include investment in stocks.” He says that people who have suffered from under-performing investments overseas because of exchange rate movements, as the shekel appreciated by 12% against the US dollar in the past year, wiping out most dollar returns, are returning to Israel. “And as interest rates fall, billions of shekels in money market funds will continue to be channeled into the stock market,” he says.
Segev further explains that the fall in software stocks has hardly impacted Tel Aviv. “The declines we have seen in Israeli IT stocks are a secondary effect of the global trend. Apart from Nice, we do not have on the local stock market software companies that were priced at sky-high multiples.”
Idan Azoulay, chief investment officer at investment house Sigma Clarity, adds another dimension: not only is money coming in, it has nowhere to run to. “The alternatives are not all that attractive. Makams (short-term securities issued by the Bank of Israel) no longer give a return of 4.5% but a whole percentage point less, and yields on long-term bonds are also much lower than they were last year,” says Azoulay. He adds that as an almost direct result “capitalization rates are also falling, and that raises the value of securities.”
Horizon Capital Markets CEO Itay Lipkovitz adds a geopolitical angle. “The negotiations with Iran hold out the possibility that there will be no attack, while the market is pricing in a decline in Israel’s risk premium. Even if there is military action, it is clear that the Iranian regime will be weakened, and the major threats to Israel will diminish.”
Azoulay agrees. “There is still room for some kind of hope that things will sort themselves out politically and that the environment will be a little more positive. I think that all these things together create a cocktail that supports the market.”
The banks: Hard to forego
One of the questions that troubles many investors is simple: Is it not too late to buy the banks, stocks that have risen 150% in two years? Azoulay suggests a framework for thinking about this. “Suppose you sold a share of a bank that gives a return on equity of 15% with an expected return of 9%. Would you sell the share of a bank that gives a return like that because it rose 150% in the past two years? When you receive dividends like these, and you’re a partner in a market that exhibits resilience and growth – I’m not sure that there’s a better alternative.”
Segev gives further reasons why the banks look attractive for investment going forward: “The efficiency measures at the banks are showing significant positive signs, and so the returns on equity in the coming years will be higher. We see this in the forecasts and expectations of the banks themselves and in the research departments of the financial institutions.”
It’s not all roses
For all the optimism, there is no lack of voices warning against blind enthusiasm.
Pasternak points to one of the worrying phenomena at the banks. “We are currently at multiples we have never seen before, 1.7-1.8, and since it’s hard to explain this, people try to suggest much higher growth,” he says. A market rising fast and becoming detached from economic values “has to be looked at with a more critical and selective eye, and it has to be remembered that the stock market is fickle. Risk management is the order of the day.”
Yuval Eisenberg, CEO of MS Rock Global Private Banking, sounds even more cautious. “Every rise further sharpens the importance of reducing risk. The Tel Aviv Stock Exchange is currently expensive in my view,” he says. He makes a practical recommendation: “Anyone who has made gains on the local market should take some of the money home. It’s worth transferring some holdings to the bond market, money market funds, and deposits. And if anyone has itchy fingers, he should buy stocks cautiously and be capable of coping with volatility.”
Lipkovitz too doesn’t forget to mention that “the local market is not cheap the way it was a year ago,” but adds, “This party too will come an end but for the time being the momentum is strong and can be expected to continue for a while.”
Are the rises connected to a possible upgrade of Israel’s credit rating? Opinion is divided on that. Segev thinks they are. “There is an expectation of an improvement in the rating, perhaps after the formation of a new government. Interest rates are on the way down and the bond market too is enjoying positive momentum.”
For his part, Azoulay thinks that there is no connection to Israel’s credit rating, and says, “I would remind you that even when Israel’s rating fell in previous years, the stock market rose.”
Published by Globes, Israel business news – en.globes.co.il – on February 11, 2026.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2026.
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