The Tel Aviv stock market extended its recent slide, with the TA-125 falling 0.6% on Wednesday, its fourth losing session in five trading days. The index dropped 4.3% over the week and is down 7.3% so far in June, even as the U.S. S&P 500 rose almost 1% last week and is down only about 1% this month.
Market participants say the main local pressure point is the emerging U.S.-Iran agreement, which many in Israel believe is being negotiated without enough regard for Israeli interests. That has ended the optimism that had lifted local shares during the confrontation with Iran, when investors expected a major shift in the regional balance of power. The mood has now turned to concern that the region will look much the same after the crisis.
Trading data show that institutional investors have led the selling, while foreign investors and small investors have actually increased exposure. Even after the pullback, the local market is still up about 12% since the start of the year, after surging 51% in 2024. The sharp gap between June’s weakness and the strong yearly performance has prompted questions about whether the rally has already run its course.
Yaniv Nir, head of trading at Bank Jerusalem, said that abroad the deal is seen as a reduction in geopolitical risk, helped by lower oil prices, but in Israel it is viewed as a strategic setback that could raise security risks and economic burdens, alongside domestic political uncertainty. Yaron Friedman of Bank Leumi said the decline was likely triggered by the Iran agreement, but the deeper reason was the market’s strong rise in recent months, with the TA-125 trading at a price-to-earnings ratio of about 19.5 versus a long-term average of 14.5. Tamar Hershkovitz of Ayalon Insurance said some selling also reflects institutional concerns about U.S. politics, including possible Republican weakness before the midterm elections, and argued that Israel still looks attractive, especially in banks and some stocks tied to Israeli resilience. Amir Ayal of Infinity-Ailim said the right allocation is 50% Israel and 50% abroad, with 45% to 50% of the portfolio in equities.
