Tel Aviv Stock Exchange indices saw sharp declines over the past three trading days after details emerged of an agreement between the United States and Iran. This market reaction contrasts sharply with the positive trends observed on Wall Street and in Europe, where markets rallied and oil prices fell due to the belief that the U.S.-Iran agreement was a stabilizing development.
In Israel, investors perceived the deal as a strategic disappointment, fearing it could perpetuate the Iranian threat and increase Israel's risk premium. This sentiment led to a "painful awakening" for the market, which had previously priced in a more optimistic post-war scenario. The TA-125 index fell 1.72% on Wednesday and has dropped 9.5% since its peak, while the TA-35 index declined 1.54%. The broader TA-90 index was down 2.03%.
Key sectors such as finance, insurance, real estate, and energy were particularly hard hit. The general banking index fell 7.7% since the beginning of the month. Infrastructure and energy stocks recorded the steepest declines, down 6.04%, with cleantech falling 5.31% and the TA Energy Israel index losing 4.53%. The defense index slipped 0.3%, completing a 7.2% decline over the week and a 25% drop over the past three months. Elbit Systems (ESLT), a major Israeli defense exporter, saw its shares drop 4.2% on the exchange, with analysts suggesting a 5-10% downward revision to forward earnings estimates for such firms due to perceived diplomatic isolation.
Moreover, the Israeli Shekel (ILS) slipped 0.3% against the US dollar, and the iShares MSCI Israel ETF (EIS) fell 1.4% in pre-market trading. This downturn reflects concerns that a U.S.-Iran Memorandum of Understanding, which reportedly sidelines Israel from security discussions, could have a lasting impact on Israel's economic prospects and geopolitical standing.
