Tel Aviv Market Suffers Worst June Since 2023 Amid US-Iran Deal and AI Concerns

June marked one of the weakest months for Israel's local stock markets in recent years, with leading indices dropping up to 12%. This decline contrasts with global markets, where major indices fluctuated mildly, falling by up to 2%. Meanwhile, the US dollar strengthened by 6% against the shekel, meaning US stock indices are expected to end the month with positive returns exceeding 10% compared to local markets.

The local market's downturn pushed it into a "correction" phase, defined as a drop of at least 10% from recent highs, for the first time since late 2023. June was the weakest month for the Tel Aviv indices in nearly three years, second only to October 2023, when the "Iron Swords" war broke out. The market was influenced by geopolitical tensions and fears of a bubble driven by artificial intelligence (AI) investments.

The easing of US-Iran tensions lowered energy prices and global uncertainty, supporting stock gains worldwide. However, Israeli markets reacted negatively, mainly due to disappointment over the emerging US-Iran agreement and its potential impact on Israel's geopolitical situation. Overseas, markets showed mixed but slightly negative trends amid concerns about massive capital expenditures by major tech companies on AI, expected to rise 70% this year to over $700 billion.

In Israel, communication and technology stocks fell over 16% in June, driven by global AI-related fears affecting local IT firms previously seen as stable investments. The Tel Aviv Defense Index also dropped more than 14%, reflecting investor worries about the US-Iran ceasefire's implications for Israel's northern front. This was perceived as negative news for defense companies that had benefited from high valuations during recent conflicts.

Matan Shitrit, chief economist at Phoenix Group, explained that the US-Iran deal did not support the stock market, which is seeking positive news to recover. He noted that recent gains were mainly fueled by pension fund inflows and foreign investors, which are unsustainable monthly. Shitrit emphasized that after three years without a correction, the market's current dip aligns with historical patterns and should not cause undue concern, as volatility is inherent in stock investments.