Economic Expert Identifies Key Events That Could Shift Stock Markets

Despite rising stock markets, over half of S&P 500 companies are experiencing declines of 20% or more from their peaks, indicating underlying weakness. This paradox was evident in the third quarter of 2026, where rising long-term US Treasury yields coincided with modest S&P 500 gains, supported by synchronized corporate profit growth. However, this resilience masks a deeper market split, with individual stock multiples contracting and leveraged companies facing pressure.

Three critical factors are being monitored for the fourth quarter. First, the energy crisis and its inflationary impact, driven by a 50% rise in crude oil and an 80% jump in diesel prices since the year's start, threaten to push the economy from inflationary growth into an inflationary crisis. Second, a tactical trade truce between the US and China, extended until January 10, 2027, offers only temporary relief for bottlenecks in chips and rare earth metals. Third, Europe faces debt burdens and fiscal cracks, with US debt exceeding $40 trillion and a widening yield gap in the Eurozone on budget difficulties.

Regarding the US elections, the outcome's market impact will hinge on economic and fiscal policy. A split Congress might lead to legislative gridlock, often viewed positively by markets for preventing sharp tax changes, potentially benefiting defense, industrial, and AI chip stocks. Conversely, a unified Democratic Congress could shift focus to expanding federal health budgets and green energy, while potentially increasing regulatory pressure on the financial sector. Regardless of the political composition, the US debt and deficit issues remain unresolved, favoring real assets like gold and commodities over long-term government bonds.

The Tel Aviv Stock Exchange is lagging global markets due to macroeconomic constraints and security/political uncertainty. Regional conflict and tensions with Iran deter foreign investors, while a high interest rate differential with the dollar and sticky inflation prevent the Bank of Israel from cutting rates. High financing costs and weak demand also burden leveraged real estate companies, a significant part of the local market. The upcoming Israeli general elections further complicate fiscal decisions.

Potential catalysts for a positive shift include a significant de-escalation in the Gulf, leading to a lower risk premium for Israel; stabilization of energy prices, moderating inflation and allowing for monetary easing; and political clarity enabling fiscal discipline. Such conditions could lead to a broad market correction, benefiting the local banking sector and insurance and infrastructure companies. However, continued regional escalation and rising energy costs would favor inflation-linked government bonds and foreign currency holdings.