Israeli Stock Market Reacts to Election Uncertainty, Recovering Post-Vote
Translated & summarized from Globes by baba
The Tel Aviv Stock Exchange's TA-125 index has fallen 8% in six months, with investors anticipating uncertainty from the 2026 elections. Historically, the market weakens before elections, especially those without a clear outcome, but recovers strongly afterward. Data shows the index rises significantly in the months following elections, and the shekel also tends to strengthen. While pre-election jitters affect the market, post-election performance has historically been robust, often exceeding long-term averages.
The story in 6 lines · by baba
- The TA-125 index has fallen 8% in six months, partly due to investor anticipation of the 2026 elections.
- The market weakens in the months before elections, especially those without a clear outcome, showing a 5.3% average drop.
- Post-election, the TA-125 index historically recovers, rising 4.7% within three months in indecisive election scenarios.
- In the year after elections, the TA-125 index has averaged a 16.4% return, outperforming its long-term average.
- The Israeli shekel tends to strengthen both before and after elections, with a more significant rise post-election.
- Investor concerns about political stalemate are priced in before elections, reducing post-election surprises.
The Tel Aviv Stock Exchange (TASE) has seen an 8% decline in its main index, TA-125, over the past six months. Market participants attribute at least part of this downturn to investor anticipation of the 2026 elections, factoring in potential uncertainty and indecisive outcomes. Data from the TASE supports this analysis, indicating that market uncertainty primarily impacts the bourse in the months preceding an election.
According to an analysis by Nissan Avraham, a macroeconomist at the TASE's research unit, the TA-125 index has historically dropped an average of 5.3% in the three months before elections that result in no clear decision, compared to a minimal 0.2% decline in elections that lead to a government formation. However, this negative pricing is typically short-lived. Avraham noted that when pre-election polls suggest no clear outcome, the local stock market shows relative weakness. Yet, historical data reveals that these gaps tend to close rapidly after the elections.
Data shows that three months post-election, markets experience a 4.7% rise in cases without a decisive outcome, versus 4.1% in cases with a decision. After five months, these figures are approximately 6.7% and 6.5%, respectively. In the twelve months following ten examined election cycles, the TA-125 index achieved an average return of about 16.4%, surpassing the long-term annual average of 11.5%. Avraham cautioned that these gains occurred alongside positive global market trends and post-crisis recoveries, such as after the dot-com bubble, the 2008 financial crisis, and the COVID-19 pandemic.
For comparison, the S&P 500 index yielded approximately 13.1% in shekel terms over the same 12-month periods following Israeli elections. The TASE stated that fears of political stalemate are reflected in the market before election day, but the gaps narrow quickly afterward. Past experience suggests the market prices in the fear of indecisiveness beforehand, so the day after the election does not necessarily bring major surprises, even without a government being formed.
The Israeli shekel also tends to strengthen both before and after elections, consistent with its long-term trend. However, the shekel strengthens by 1.4% against a currency basket in the year leading up to elections and by 2.5% in the year following them. The TASE found that as election dates approach and uncertainty about government composition and future economic policy grows, the economy's risk premium may increase, causing foreign investors to adopt a wait-and-see approach.
