Investors Anxious Over Upcoming Israeli and US Elections
Translated & summarized from Maariv by baba
Investors are closely monitoring upcoming elections in Israel and the US, with historical data showing positive market returns after US midterm elections, though analysts caution against relying on past performance. Experts highlight that while business-friendly policies can influence markets, factors like deficits and borrowing costs are also critical. Currency fluctuations are expected, with potential impacts on the Israeli shekel depending on election outcomes. The long-term economic stability of Israel will depend on its government's ability to manage budgets, security funding, and debt, influencing both the shekel and bond prices.
The story in 6 lines · by baba
- Investors are watching upcoming Israeli and US elections, with historical data showing positive market trends after US midterms.
- Analysts caution that past market performance after elections does not guarantee future results.
- Economic factors like deficits, borrowing costs, and interest rates significantly influence market performance.
- The Israeli shekel's strength may be affected by election outcomes, with potential impacts on exporters and foreign investments.
- Israel's future economic stability hinges on its government's fiscal and security management.
- Investors are advised to consider their entire portfolio's exposure to market and currency fluctuations.
Investors in Israel are closely watching the political landscape as both Israel and the United States approach significant elections. Historically, the period following US midterm elections has shown positive returns for the S&P 500, with an average gain of 15.4% in the 12 months after the vote since 1950. However, analysts caution that these past results do not guarantee future performance, as other factors like interest rates, inflation, and corporate profits also influence market movements.
Market experts note that while policies perceived as business-friendly can impact stock markets, the composition of Congress will affect legislative progress. Furthermore, the national deficit and the cost of government borrowing are crucial considerations. Measures that benefit companies might also increase their financing costs. Natanel Laumer, an analyst, explains that if policies widen the deficit and push bond yields higher, the capitalization rate of corporate profits could rise, negatively affecting valuations, particularly for growth and technology stocks. Conversely, rising yields driven by strong economic growth could coincide with improved profitability.
Regarding currency fluctuations, J.P. Morgan estimated in August that an opposition victory in Israel could strengthen the shekel by 2-3%, while a win for Prime Minister Netanyahu might weaken it by about 3%. However, current market pricing suggests a more moderate movement. Laumer emphasizes that exchange rates are influenced by interest rate differentials, capital flows, and global developments, so not all shekel changes post-election are solely attributable to the vote. The true economic test for the next Israeli government will be its ability to present a credible budget, fund security needs, and maintain a reasonable debt trajectory. Policies that reduce Israel's risk premium could support the shekel and government bond prices.
A decrease in Israel's risk premium could benefit companies reliant on local financing. However, a stronger shekel could negatively impact exporters with dollar revenues and local expenses, and reduce the shekel-denominated returns of foreign investments. Investors holding unhedged dollar assets might also see their profits eroded. For example, a 10% rise in US stocks coupled with a 3% drop in the dollar's value against the shekel would result in a 6.7% shekel return, significantly less than the 10% if the exchange rate remained stable. Conversely, a stronger dollar could mitigate losses on dollar assets if the stock market declines. Analysts advise investors to consider how their entire portfolio is affected by changes in stocks, interest rates, and currency, and whether it aligns with their family's needs and investment horizon before making adjustments based on election polls.
