Markets are entering another week dominated by geopolitics, with investors watching whether the understandings signed by the United States and Iran will hold. The deal is already under strain, after clashes between Israel and Hezbollah prompted Iran to again claim it had closed the Strait of Hormuz, a statement denied by the U.S. Negotiations are now taking place in Switzerland after talks originally set for Friday were canceled. While Wall Street has benefited from lower oil prices and the agreement, Tel Aviv has treated it as inconsistent with Israel’s security interests, and the Tel Aviv 35 fell more than 4% last week. Fighting in the north continued despite the ceasefire announcement.
In Israel, the market ended the week sharply lower, with the Tel Aviv 35 down about 4.6%, the Tel Aviv 90 off 5.7%, and the Tel Aviv 125 losing 4.9%. Insurance and cleantech led the declines, falling 9.6% and 7.3%, after both had been among the strongest sectors since the start of the year. Banks also lost 4.5%. Among the few Tel Aviv 125 gainers were dual-listed chip stocks Tower Semiconductor, Camtek, and Nova, which rose about 10%, 6%, and 1%, helped by strength in the U.S. semiconductor sector. Mitav chief economist Alex Zbezinski said investors may have been caught with unusually high exposure to Israeli assets after a long period of outperformance, and noted that institutional exposure abroad has fallen from about 48% in May last year to about 44% this year.
In the U.S., trading was shortened by Juneteenth, so no arbitrage gap will appear in Tel Aviv on Monday. Despite the holiday week, the S&P 500 gained 0.9%, the Dow Jones rose 0.7%, and the Nasdaq climbed 2.4%, lifted by chips. The SOXX semiconductor ETF jumped more than 7% to a record high. Intel surged over 10% after President Trump said it would work with Apple to make chips in the U.S. SpaceX shares continued their post-IPO momentum, rising about 15% to a $2.43 trillion market value, although they weakened in the last two sessions.
Oil prices fell to a three-month low after the U.S.-Iran memorandum, with Brent around $80 a barrel and WTI around $76. Analysts said the market is still wary because shipping lines have not fully resumed Hormuz routes and insurance costs remain elevated. The dollar strengthened about 1.3% against the shekel to 2.96 shekels, and the DXY climbed to 100.8, its highest level in more than a year. Gold remained under pressure at about $4,170 an ounce.
In Israel, markets are pricing in two consecutive rate cuts, while in the U.S. expectations are rising for a rate hike by year-end. Bank Hapoalim strategist Mudi Shapir said lower inflation and a stronger shekel support a July cut, but not by half a point, citing the weaker shekel, Israel’s higher risk premium, faster wage growth, and the Fed’s hawkish tone. Mizrahi Tefahot’s Yoni Panning said the market has backed away from pricing a 0.5% cut, but still expects two consecutive cuts and slightly more than three in the coming year. Ahead of Thursday’s U.S. PCE inflation report, economists expect a 0.5% monthly rise, or 4.1% annual inflation, with core PCE seen at 3.4%.
