Israeli Markets Brace for Volatility Amidst Political Uncertainty and Global Trends

The Tel Aviv Stock Exchange is expected to open with an attempt at recovery after sharp declines on the previous day, driven by political uncertainty following the elections and mixed global market trends. Investors will be watching Wall Street, where futures indicate a negative opening for the Nasdaq due to contrasting reactions to tech giants' earnings: a significant drop for Google versus a surge for Microsoft.

Dual-listed Israeli stocks are anticipated to provide a positive opening for local indices, with Tower Semiconductor, Nova, Gilat, and Ormat showing positive arbitrage gaps. However, Teva, Nice, and Palo Alto Networks will return with negative gaps, and InterCure faces a substantial negative gap of 4.59%. Yesterday, the Tel Aviv Stock Exchange saw significant drops across all key indices, with the TA-35 index falling 1.7%, TA-125 by 2.3%, and TA-90 by 4.5%. The construction and real estate sectors were hit hardest, with the TA Construction index dropping 8.3%, its worst day since October 8, 2023. Real estate fell 6.3%, insurance 5.2%, banks 5%, and finance 4.8%. In contrast, dual-listed stocks and the technology sector provided some support, with the BioMed index rising 1.4%, dual-listed stocks up 0.9%, and technology up 0.8%. Nova and Tower Semiconductor surged over 5.5%, while Kamatech, Palo Alto, and Ormat rose over 3%.

In currency markets, the dollar-shekel exchange rate experienced extreme volatility. After the shekel strengthened during election day on expectations of a clear outcome, it reversed sharply, with the Bank of Israel setting the representative rate at 3.1280 shekels to the dollar, a daily jump of about 1.62%. Analysts attribute this to speculative activity and the closing of foreign positions as election results became clearer. The inability to form a coalition is expected to keep the shekel volatile.

Globally, Asian markets showed mixed performance, with Japan's Nikkei up 1.1% while Hong Kong's Hang Seng and China's Shanghai indices saw slight declines. South Korea's Kospi fell 1.2%, influenced by Samsung's mixed third-quarter results, which included a significant jump in operating profit driven by demand for AI memory chips. Wall Street futures were mixed, with Nasdaq and S&P 500 futures down, while Dow Jones futures were up. Yesterday, Wall Street traded with volatility after the Federal Reserve held interest rates steady but offered no clear guidance on future hikes. Oracle's stock rose after it provided a strong long-term cash flow forecast, easing concerns about its AI investments.

The US Federal Reserve maintained its interest rate at 3.75%-4%, pausing its monetary tightening cycle. Despite the pause, the Fed's statement indicated inflation remains high and economic activity is expanding rapidly. Analysts expressed mixed reactions to Fed Chair Jerome Powell's press conference, with some finding his explanations for not raising rates confusing given strong economic data and high inflation. The market is now looking ahead to the next Fed meeting in December, with some analysts suggesting further rate hikes are possible.

Goldman Sachs strategists believe the market is pricing in too many future interest rate hikes, forecasting only one more increase from the Federal Reserve. Historical analysis suggests that periods of minimal rate hikes have historically been positive for the stock market, though recovery times have varied.