For nearly two months, since early May, the Israeli stock market has stalled and tilted lower, while Wall Street has continued to rise overall. The article asks whether the extraordinary rally in Israel has exhausted its special support factors, or whether the recent weakness is only temporary noise and investors are simply returning to their “home port,” the United States.
The main explanation for the slowdown is the apparent end of the war with Iran, and possibly the way it concluded. That has already shown up in some weakness in defense stocks, which were among the main engines of the local rally. Geopolitical calm has also helped push global energy prices down, and because energy stocks carry meaningful weight on the Tel Aviv market, that source of strength has also faded. Lower energy prices, together with a shrinking Israel risk premium, may give the Bank of Israel more room to keep cutting interest rates toward U.S. and European levels, but that also hurts the shekel and financial shares, especially banks, which had benefited from the current rate environment.
The author says the end of wartime spending, including defense and reconstruction budgets that flowed into the real economy and markets, could also slow demand. The reduction in Israel’s risk premium previously encouraged foreign inflows and short covering, but that effect is nearing exhaustion. At the same time, U.S. valuation remains high, with the S&P 500 trading at a forward price-to-earnings multiple of about 21 to 22, while Israeli multiples have risen enough that the local market has lost some of its former cheapness.
Still, the piece argues there are reasons to keep balanced exposure to Israel. A ceasefire could break down after 60 days, renewing the geopolitical support factors. U.S. gains are also concentrated in AI and semiconductor stocks, so a sharp correction there could make Israel look relatively defensive again. Other possible catalysts include a diplomatic breakthrough, stronger foreign tech investment, continued global security tensions that aid Israeli defense firms, a renewed property market if rates fall further, and a rebound in local gas and oil shares if energy prices stabilize. The bottom line, the article says, is not choosing between Tel Aviv and New York, but holding a diversified portfolio that does not depend on any single market.
