Tel Aviv Security Stocks Diverge as Wall Street Eyes Strong Earnings and Hormuz Strait Tensions
The upcoming trading week opens amid geopolitical uncertainty, with the Strait of Hormuz remaining closed to free navigation. Tensions have escalated after former US President Donald Trump announced plans to declare the strait American territory. Israeli investors are also reacting to recent escalations with Hezbollah on the northern border and ongoing political efforts to disarm Hamas in Gaza.
In Tel Aviv, the stock market showed mixed trends for the third consecutive week. The TA-35 index rose by about 0.8%, while the TA-90 index fell by 2.2%, marking its lowest level since last December. The defense sector led declines with a 7.8% drop, driven by shares like Next Vision and Elbit Systems falling over 10% despite strong earnings, attributed to high investor expectations. Conversely, the oil and gas sector gained 3.2% amid rising global oil prices and positive results from NewMed Energy and Tamar Petroleum. The banking sector also advanced 2.2% following favorable reports from major banks including Leumi and Hapoalim.
On Wall Street, the S&P 500 and Nasdaq closed the week with modest gains, marking a third consecutive positive week, while the Dow Jones declined slightly. The energy sector surged 7.3%, its largest weekly increase since October 2022, supported by strong oil company earnings and Hormuz Strait tensions. Over 90% of S&P 500 companies have reported earnings, showing approximately 50% profit growth, the strongest since mid-2021. However, Friday saw declines across major indices, with analysts suggesting a market plateau post-earnings season. Infrastructure Capital Advisors CEO Jay Hatfield projected the S&P 500 could reach 8,100 points by year-end, assuming stable oil prices around $80 and no Fed rate hikes.
Oil prices rebounded strongly, with Brent crude closing at $88.5 per barrel and WTI at $82.4, driven by ongoing regional tensions and US economic sanctions threats against Iran. The Israeli shekel strengthened for a second week against the dollar, closing near 2.96 shekels per dollar.
In Israel, July consumer price data showed inflation at 1.5%, the lowest in five years and below the Bank of Israel's target range. Despite this, strong second-quarter GDP growth of 15.4% annualized (3.6% quarterly) reduces the likelihood of a September interest rate cut. Mizrahi Tefahot chief economist Ronen Menachem noted risks from volatile fuel prices and seasonal factors but acknowledged the robust local economic activity. Meanwhile, US markets await Wednesday’s Federal Reserve Open Market Committee minutes for clues on future monetary policy amid mixed inflation signals.
Veteran Wall Street strategist Ed Yardeni raised his year-end S&P 500 target to 8,400 points, citing exceptional earnings momentum rather than speculative buying. He views any market dips as buying opportunities and maintains a long-term target of 10,000 points by 2029, optimistic about continued economic growth.
Key corporate earnings reports in Tel Aviv this week include Mizrahi Tefahot, Migdal Insurance, Matrix, and Azrieli Group, while US retail giants Home Depot, Target, and Walmart will report, shedding light on consumer health after disappointing July sales data.
Summary: Amid heightened geopolitical tensions around the Strait of Hormuz and regional conflicts, Tel Aviv’s defense stocks diverged from global trends, while Wall Street’s strong earnings season and rising oil prices supported energy stocks. Israel’s economy showed robust growth, tempering expectations for near-term rate cuts, as markets await key US Fed policy signals.