War with Iran? Tel Aviv Stock Exchange shrugs, rises for second day
Investors weigh risks but bet on regional realignment, defense tech boom, and Israeli resilience.
It was hard not to look with wonder and astonishment at the Tel Aviv Stock Exchange (TASE) over the past couple of days. Even as Israel entered the war it feared most, against Iran, the exchange displayed remarkable calm and resilience. Despite a 12% spike in the local fear index, now hovering at a two-year high, the main indices did not plunge. In fact, they edged upward.
The Tel Aviv-35, Israel’s flagship index, rose nearly 0.5%. Long-term government bonds dipped only slightly, by around 0.4%. On Monday, the market continued its upward trend, logging a second consecutive day of gains.
“The stock exchange’s reaction doesn’t surprise me,” said Danny Yardeny, head of Nostro Management at Bank Leumi and former VP of Investments at Altshuler Shaham, in an interview with Calcalist. “We’re in a complex situation, yes - but it’s far less severe than the worst-case scenarios we imagined about a direct conflict with Iran. Israel’s military strength is sending a signal that something significant and positive is taking shape. The potential for a new regional order has increased, and that’s encouraging for the markets.”
Asked whether the stock market was indifferent to the heavy price being paid by Israeli citizens, Yardeny said: “Yes, the civilian cost is steep, but the alternative was far worse. We’re on the front line with Iran, and we’re bearing that weight. But there’s also a glass-half-full view: this may mark a strategic rupture in the so-called axis of evil.”
On the bond side, Yardeny noted: “Yields are in a reasonable range. They’re drifting slightly higher because prolonged fighting may widen the fiscal deficit, forcing the government to issue more debt. But there’s no drama. The market’s response is actually quite strong - not weak. You can also see this in the shekel’s performance against the dollar. Right now, the market is backing Israel.”
If the markets are optimistic, why is the fear index spiking? “We’re still in the thick of it,” he said. “The fear index still has room to rise. But if the current dynamic holds, we could reach a positive outcome.”
Modi Shafrir, chief market strategist at Bank Hapoalim, believes investors are starting to price in a best-case scenario: “The market is beginning to reflect the belief that Israel may emerge from this campaign having fully neutralized the nuclear threat. Even if Israel only manages to set Iran’s program back by several years, that still reduces the long-term risk premium on Israel, and pushes stocks upward.”
According to Shafrir, the market is also anticipating broader geopolitical implications: “A decisive result would reposition Israel in the region. More countries could seek alignment, and normalization with Saudi Arabia may take shape. That won’t happen immediately, but it’s like school: kids want to sit next to the strong kid.”
Still, Shafrir cautioned that risk remains: “If the campaign drags on, if the U.S. fails to offer real support, and if Israel suffers heavy infrastructure and economic damage, the result could be a major political and fiscal crisis. If everyone were fully convinced of the optimistic scenario, the stock market would have jumped 5% today. The market sees the complexity, but assigns higher probability to the positive path.”
Yotav Costica, co-CEO and chief investment officer at More Investment House, compared Israel’s June 12 strike on Iran to Hamas’s October 7 attack on Israel: “Black Saturday was a huge loss. Against Iran, we delivered a huge win. I believe this positions Israel, in the foreseeable future, as a security and technology power, and more players will want to align with us.”
Costica, who manages one of Israel’s largest mutual fund firms, noted that there were mild redemptions during Sunday’s trading: “Some investors are still cautious, but I believe the trend will reverse. New money will flow in. Local investors are reallocating toward sectors like defense and real estate, which will benefit from large-scale urban renewal.”
Asked about investor patience during a drawn-out conflict, he said: “Every night brings unimaginable headlines. But the market’s sensitivity threshold has risen. A strike on strategic infrastructure - gas fields, airports, or power stations - could disrupt things, but until then, resilience remains.”
Matan Pasternak, CEO of hedge fund VAR Capital, said Israel’s defense sector is riding a global wave of demand: “The success of Israeli missile defense and strike systems is boosting our global standing. Demand is surging not just due to Iran, but also Ukraine, Taiwan tensions, and NATO rearmament.”
Elbit, Rafael, and IAI, he said, are now reporting backlogs in the billions, some under multi-year government contracts: “Israel has become a go-to hub for advanced, reliable, and rapidly available military technology.”
