The war in Gaza is nearing its end, barring last-minute disruptions, and the hostages are returning home after two of the most difficult years Israeli society has ever known. The Tel Aviv Stock Exchange (TASE) marked the moment with a strong rally that lifted all major indices to new highs, accompanied by unusually heavy holiday trading volumes of NIS 4.4 billion.
Since the outbreak of the war, market performance has been so strong that it would be easy to mistake the past year for a boom period. The Tel Aviv 125 index has returned 81% since October 7, 2023, outpacing every major Western benchmark, including the S&P 500 (56.7%) and the tech-heavy Nasdaq (71.5%). These figures are measured through October 9, just before Wall Street’s recent turmoil following U.S. President Donald Trump’s announcement of renewed tariffs on China.
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Tel Aviv Stock Exchange (right) and IDF activity in Gaza.
(Photo: IDF, Bloomberg)
The rally, fueled by geopolitical tailwinds and investor optimism over an end to the conflict, has also lifted Israeli stocks above their American counterparts over a five-year horizon, despite the sharp underperformance seen in 2023 amid political turmoil and the judicial overhaul. Over the past five years, the Tel Aviv 125 has delivered a cumulative return of 132.3%, compared with 99% for the Nasdaq and 94.2% for the S&P 500.
Insurance stocks have led the charge: the Tel Aviv Insurance Index has soared 250% since the war began. As major holders of Israeli savings and market investments, insurers have benefited from rising asset values and management fees. The Tel Aviv Banks 5 Index also outperformed, gaining 99%.
Among the 125 largest listed companies, Aryt Industries, a Sderot-based shell fuze manufacturer, stands out with a stunning 2,095% surge to a market capitalization of NIS 4.4 billion. It was followed by Meitav Investment House, up 746% to NIS 8.4 billion. Rounding out the top ten is El Al, which has gained 265% since October 7 but fell 6.4% on Thursday amid expectations that foreign carriers will soon resume flights to Israel, eroding its wartime market share. Of the 514 companies traded throughout the period, 141 delivered returns exceeding 100%, roughly 27% of all listed firms.
Historically, the Israeli market tends to outperform global peers in the year following a war. Yet given the steep gains already realized, analysts are now asking: how much higher can the market climb, what might sustain these gains, and what risks could lie ahead?
Interviews with senior market figures suggest cautious optimism.
“The performance of the Tel Aviv Stock Exchange over the past year has been phenomenal,” said Yotav Kostika, CEO of More Investment House’s mutual fund arm. “The uncertainty surrounding the deal was the last cloud over investors, and now that it’s resolved, there are still several factors that could drive the market higher. The big story is the potential expansion of the Abraham Accords. If that happens, it will create real prosperity.”
Kostika also noted the political dimension: “There’s a chance elections will be moved up. The composition of the next government will certainly keep investors busy, but that’s still months away.”
Modi Shafrir, Chief Financial Markets Strategist at Bank Hapoalim, echoed the optimism: “The local market still isn’t pricing in potential normalization with Saudi Arabia. Positive geopolitical developments could easily support further gains. Ironically, while the region often goes from bad to worse, this time the chance that things will go well is higher. If the war is truly over, there’s a clear rationale for continued increases.”
Yuval Beer-Even, an investment manager at Migdal Insurance, offered a more moderate view: “The market had already priced in a 70–80% chance of a deal. Now that it’s confirmed, we may not see another surge as strong as before, but there’s definitely room for further gains. The fundamentals remain positive, this is not the time to sell.”
Beer-Even added that “since 2023, we’ve seen tens of billions of shekels flow out of Israel into S&P 500 index funds. If even one-eighth of that money comes back, it would significantly boost demand on the local market.”
Still, Kostika cautioned that “after such a strong rally, short-term profit-taking is inevitable. Financial firms remain in excellent condition, with strong fundamentals across banks and insurers. But defense stocks could face near-term pressure as the war winds down and domestic demand for their products falls. That said, a new elite industry has been born here, the defense industry.”
Lior Yochpaz, Chief Investment Officer at Menora Mivtachim, said the recent surge shows investors are already thinking about “the day after.” The real economic impact, he argued, will be felt as foreign investors return: “Private equity funds have been active mainly in high-tech in recent years. Now we may see them expand into more traditional sectors as the war ends.”
The ceasefire also shifts attention to Israel’s key macroeconomic challenge, inflation and the interest rate used to fight it.
According to Shafrir, “the end of the war will ease supply constraints: reservists will return to work, flights will increase, and prices will moderate. Accordingly, I expect the Bank of Israel to cut rates as early as next month, and within a year the policy rate could fall to 3.5–3.75%. Mortgage rates will decline as well, supporting the real estate sector.”
Kostika agreed: “The market already expects a rate cut at the next Monetary Committee meeting in November. The housing market is in poor shape, with weak sales in the Dan region. Lower rates and improved sentiment could revive demand.”
Yochpaz added that “a ceasefire will also reduce the risk premium on Israeli government bonds, allowing further rate cuts. The market is currently pricing in a 3.5% policy rate, which makes sense. We’ll see strong growth after the war, and the current real rate of 1.5% is high, so there’s room to ease.”
However, he cautioned that “this won’t necessarily lead to a sustained rally in real estate shares. While lower rates will help, foreign investors returning to the TASE are more likely to focus on financial stocks than property developers. Just as it took time for higher rates to impact credit costs, it will take time for lower rates to flow through the economy.”