Israeli Stock Market Outperforms After Elections, Even Without Clear Outcomes
Translated & summarized from Bizportal by baba
A study by the Tel Aviv Stock Exchange found that the TA-125 index averaged a 16.4% return in the year after Israeli elections, outperforming its long-term average. Even in cases without a clear election outcome, market performance stabilized and nearly matched that of elections with clear results within months. While historical data shows positive trends, the study cautions that market performance is influenced by various factors beyond politics, including global markets and economic conditions.
The story in 5 lines · by baba
- Israeli stocks averaged 16.4% return in the year after elections, exceeding the long-term average.
- The S&P 500 also saw better-than-average returns in the year following Israeli elections.
- Markets dropped before elections without clear outcomes but recovered post-election.
- Pre-election fears may be priced in, allowing markets to stabilize after the results.
- The Israeli shekel also tended to strengthen in the year following elections.
Contrary to fears that political uncertainty and coalition negotiations might harm the stock market, historical data from Israel's stock exchange suggests otherwise. A study by the Tel Aviv Stock Exchange's research unit, analyzing ten election cycles, found that the TA-125 index yielded an average total return of approximately 16.4% in the 12 months following elections. This figure surpasses the long-term average annual return of about 11.5% between late 2002 and late 2025, indicating that the local stock market performed better than its long-term average in the year after elections.
Even when compared to Wall Street, the results are notable. The S&P 500 index showed an average return of about 13% in Israeli shekels in the year after Israeli elections, compared to its long-term average of roughly 8.5%. While the connection isn't solely due to Israeli political events, both markets performed better post-election.
However, the study cautions against viewing elections as a guaranteed buying opportunity. These are historical averages, and significant market recoveries after major crises like the 2008 financial crisis and the COVID-19 pandemic, which coincided with some of these election periods, contributed to the positive returns. The research also examined market behavior in election cycles that resulted in a government versus those without a clear outcome.
In the three months preceding elections without a clear outcome, the TA-125 index dropped by an average of about 5%, compared to a mere 0.2% decrease before elections that led to government formation. A month before elections, the drop was 3.3% for unclear outcomes versus 0.7% for clear ones. Surprisingly, one month after elections without a clear outcome, the cumulative return was 2.3%, compared to a negative 0.7% for those with a clear outcome. After three months, returns were 4.7% for unclear outcomes versus 4.1% for clear ones, with the gap nearly disappearing after five months.
One explanation for this phenomenon is that markets may price in the fear of uncertainty beforehand. Investors might react to polls and potential instability in the months leading up to an election. Once the outcome is known, even if it's a political stalemate, the clarification of the scenario might allow the market to stabilize. The study highlights that prolonged political deadlock that negatively impacts the economy, state budget, or investor confidence could still weigh on the stock market. The shekel also tended to strengthen in the year following elections, showing a slightly stronger appreciation after voting than its long-term average.
