Israeli Stock Market Shows Resilience Post-Election, Research Finds

A study by the Tel Aviv Stock Exchange's research unit analyzing the past ten election cycles in Israel reveals a pattern of initial post-election market volatility followed by recovery and growth. On the first trading day after elections, the TA-35 and TA-125 indices typically see modest gains of around 0.58% and 0.52% respectively. However, this initial optimism often fades, leading to a negative cumulative return of approximately 0.89% for the TA-35 and 0.67% for the TA-125 by the end of the first week.

Despite the short-term downturn, the market tends to rebound within a month. The research indicates that by the end of the first month post-election, the TA-35 index averages a positive cumulative return of 1.72%, and the TA-125 rises by 1.67%. This suggests that the initial dips do not necessarily predict a sustained negative trend.

Volatility in the leading stock indices significantly increases in the weeks following Knesset elections, jumping by up to 45% compared to a typical trading week. This heightened fluctuation is attributed to the uncertainty surrounding government formation and its ability to pass a budget. While forming a government can take months, investors typically form a clearer picture of the potential government's economic policy within a month.

The study, which examined the 30 days after ten elections between 2003 and 2022, found that volatility in the main indices was 31%-45% higher in the first three weeks post-election before beginning to moderate. The exchange advises long-term investors to disregard short-term market noise, as temporary fluctuations around elections are not necessarily a reason to alter investment strategies. The long-term performance of the stock market is primarily influenced by fundamental economic factors such as growth, interest rates, inflation, and corporate profitability.

The research unit highlights that Israel's economy benefits from relatively low interest rates and inflation compared to other major developed economies, a tight labor market, and low unemployment. Growth forecasts for the coming years place Israel among developed economies with the highest expected growth rates, which the exchange believes will continue to support the local stock market.