Tel Aviv 90 Index Signals Economic Slowdown Six Months Ahead, Meitav Study Finds
Translated & summarized from Bizportal by baba
A Meitav study indicates Israel's TA-90 stock index better predicts economic growth, showing a 54% correlation with a six-month lead. This mid-cap index is more sensitive to domestic factors than the TA-35. The TA-90's recent weakness suggests a potential economic slowdown in early 2027, though political uncertainty may also be a contributing factor.
The story in 5 lines · by baba
- The TA-90 stock index is a better leading indicator of Israel's economic growth than the TA-35 index.
- A six-month lead in the TA-90 index shows a 54% correlation with GDP growth, according to a Meitav study.
- The TA-90's sensitivity is linked to its higher concentration of domestic-focused companies like real estate and retail.
- Recent weakness in the TA-90 may signal a potential economic slowdown in the first half of 2027.
- Political uncertainty ahead of elections could also be contributing to the TA-90's underperformance.
A new analysis by Meitav, spearheaded by Chief Economist Alex Zabazinsky, suggests that the Tel Aviv 90 (TA-90) stock index, representing mid-cap companies, is a better leading indicator for Israel's economic growth than the flagship TA-35 index. The study, which examined data from early 2008 to mid-2026, excluding the COVID-19 pandemic and the start of the war, found a correlation between the TA-90's performance and GDP growth.
While the correlation between stock market performance and economic activity in the same quarter was weak, the TA-90 showed a stronger predictive power when looking at previous quarters. A one-quarter lead revealed a 46% correlation, and a six-month lead showed a 54% correlation, compared to 43% for the TA-35 index. This suggests the stock market can anticipate economic shifts before they appear in official data.
Meitav attributes the TA-90's sensitivity to its composition, which includes a higher proportion of companies in real estate, retail, and services, sectors more closely tied to domestic consumption and investment. In contrast, the TA-35 is weighted towards large, multinational corporations in pharma, defense, and tech, whose performance is influenced by global factors.
The findings align with observations by columnist Amir Ben Yehuda, who noted the TA-90's recent weakness, partly due to the significant weight of real estate stocks. Rising bond yields increase financing costs for these companies and affect asset valuations, potentially impacting the broader economy if the trend persists.
Based on the TA-90's recent underperformance, Meitav suggests the Israeli economy might experience a slowdown in the first half of 2027, contrary to forecasts predicting acceleration. However, they caution that this weakness could also reflect political uncertainty ahead of upcoming elections, leading investors to demand a higher risk premium, rather than solely anticipating economic decline.
