US-Iran Tensions Drive Volatile Global Markets and Israeli Stocks

Global financial markets opened amid escalating tensions between the US and Iran following Iran's attack on ships in the Strait of Hormuz and a strong US retaliatory strike on approximately 90 Iranian targets overnight. A US official stated that the ceasefire with Iran has ended, at least for now. This geopolitical escalation has pushed Brent crude oil prices above $78 per barrel and WTI crude above $74, with oil futures surging over 4% the previous day. US President Donald Trump declared he no longer seeks negotiations with Tehran, heightening fears of disruptions to global shipping routes and energy supplies.

The Tel Aviv Stock Exchange closed mixed amid this volatility. The TA-35 index ended nearly flat, while the TA-90 dropped about 1%. The banking sector was the only one to gain, rising 1.4% and over 3% since the start of the week, supported by expectations of interest rate cuts by the Bank of Israel and investors seeking stability amid uncertainty. Conversely, construction, insurance, and cleantech sectors declined. Notably, Nayax shares fell after a cyberattack on a subsidiary's cloud account, though core systems remained unaffected. Aura's stock also dropped 5% after reporting slower apartment sales in the first half of 2026.

In the US, Wall Street closed mixed with the Dow Jones down 1.1%, S&P 500 down 0.2%, and Nasdaq up 0.3%, buoyed by a tech rally led by Broadcom following Apple's $30 billion investment in its chip manufacturing. However, airline and consumer stocks suffered due to rising oil prices and geopolitical risks. SpaceX shares declined below their IPO price shortly after listing, despite optimistic analyst outlooks.

Bond markets reflected increased risk perceptions, with Israeli government bond indices falling amid expectations of higher security spending. US Treasury yields rose slightly on inflation concerns driven by energy prices. The dollar initially surged against the shekel but stabilized by the end of trading.

On the macroeconomic front, Israel's deficit over the past 12 months stood at 3.3% of GDP, below the 4.9% target, supported by strong revenue growth and controlled expenditures. The Federal Reserve's latest minutes revealed deep divisions over future rate policy, with a tilt toward a possible rate hike later this year amid inflation concerns exacerbated by rising energy costs and AI-driven economic shifts.

Market analysts note a rotation from high-momentum tech stocks to defensive sectors like finance and healthcare, reflecting investor caution amid geopolitical tensions and seasonal weakness ahead of the US midterm elections. The ongoing conflict and elevated oil prices pose risks to inflation and interest rates, challenging hopes for a soft economic landing. Investors are advised to focus on companies with solid cash flows and reasonable valuations as the AI-driven rally cools.