Tel Aviv stocks slide as investors reassess Iran deal and prior war optimism

Israeli stocks fell sharply over the last three trading sessions after the details of the U.S.-Iran agreement became public, as market participants said Wall Street and Europe were rallying while Tel Aviv corrected from overly optimistic postwar pricing. One market source called it a “painful awakening,” saying investors had imagined a “new Middle East” in which Iran would be weakened, Saudi Arabia and Qatar would join the Abraham Accords, and global capital would rush into Israel. That scenario did not materialize, the source said, and the market is now repricing the so-called day after.

On Monday, the Tel Aviv 125 index dropped 1.72% and was down 9.5% from its peak. The Tel Aviv 35 lost 1.54%, the Tel Aviv 90 fell 2.03%, the defense index declined 0.3%, the banking index has fallen 7.7% so far this month, and the defense sector is down 7.2% this week and 25% over the past three months. The steepest losses were in infrastructure and energy, down 6.04%, clean tech, down 5.31%, and Tel Aviv Energy Israel, down 4.53%.

Chipmakers were relatively resilient, including Tower Semiconductor, Nova and Camtek, helped by global artificial intelligence momentum. But energy-related companies tied to data centers were hit hard, including Meshek Energy, down 12.6%, Doral Energy, down 11.84%, Ormat Technologies, down 7.87%, Mega Or, down 6%, and Nofar Energy, down 4.65%.

The selloff also reflects new Electricity Authority rules for data centers. Under the new framework, developers will have to pay millions of shekels a year just to keep a place in line for grid connection, instead of submitting free applications, and the authority may also disconnect data centers for up to six hours with advance notice. Only about a quarter of the accumulated requests are expected to be approved.

Analysts said the market had already become expensive before the agreement, especially banks, which at their peak traded at price to book multiples of 1.7. Sigma Claritiy chief investment officer Idan Azulay said the deal is bad for Israel and has revived country-risk premiums that had shrunk since early 2024. He added that while there is no collapse, the market is readjusting and Donald Trump may still modify the agreement in the next 60 days. Other traders said the shock reflects geopolitical concerns, local political uncertainty, and excessive valuations in finance, insurance, real estate and energy.