Israel’s stock market has reached unprecedented heights in
2025 despite multifront wars, with the TA-125 delivering the world’s fastest
returns and the shekel rallying against major currencies. Analysts attribute
this growth to investor faith in Israel’s military achievements, hopes for
regional stability, and a robust tech-driven economy—tempered by warnings
concerning unresolved geopolitical risks.
Israel’s Wartime Market Defies Global Expectations
Despite facing the longest and most intense wars in its
history, Israel’s stock market has sprinted ahead of global peers, outpacing
established indices and confounding traditional wartime economic models. As
reported by Sharon Wrobel of The Times of Israel, the Tel Aviv Stock Exchange
(TASE) not only rebounded from its late-2023 plunge but has delivered
record-smashing gains through 2024 and 2025, with the benchmark TA-125 index
posting a 34.6% leap.
This surge comes against the backdrop of relentless
hostilities: since October 2023, Israel has endured barrages of missiles,
widespread mobilisation of reservists, and economic strain from repeated
security threats. The recent 12-day conflict with Iran, which saw
infrastructure damage and displacement, did not dent market momentum.
The headline question resounding across financial desks
worldwide: Why are investors betting so confidently on Israel amid such
adversity? The answers, offered by economists, institutional investors, and
analysts—across outlets such as The Times of Israel, Business Insider, and the
Jerusalem Strategic Tribune—present a complex mix of resilience, strategic
victories, and calculated optimism.
What Is Driving Israel’s Wartime Stock Boom?
Perceptions of Strategic Victory
As reported by Sharon Wrobel (The Times of Israel), analysts
and economists attribute the stock market’s highs to investor bets that
Israel’s recent military achievements—primarily against Iran’s nuclear and
military infrastructure—have notably reduced existential threats to the state.
Jonathan Katz, a macroeconomist at Leader Capital Markets, told The Times of
Israel:
“Investors are looking through war costs at the big picture and at what has been achieved: a successful war operation against Iran, which was always Israel’s main geopolitical and existential risk and a threat to its economy”.
Katz highlighted that the decapitation of key Iranian
proxies—including targeted strikes that eliminated Hezbollah’s leadership and
Israel’s effective operations in Syria—have fuelled investor optimism for a
“reshaped Middle East” and possible long-term stability.
Investor and Institutional Flows
Wrobel of The Times of Israel reported that in the first
half of 2025, Israeli retail investors channelled about NIS8.2 billion ($2.45b)
into the stock market, with foreign residents investing NIS9.6b ($2.86b)—both
figures more than doubling inflows from the previous half-year. Yaniv
Pagot, vice president of trading at the TASE, attributed this to local
institutions returning after years of global diversification and foreign
investors seeking refuge from volatility elsewhere.
Sectoral Winners: Tech, Defence, Finance
As reported in Business Insider by Theron Mohamed, one of
the TA-125’s biggest winners is Elbit Systems—a defence and military tech
provider whose stock has soared by 116% in 2025. Russ Mould, investment
director at AJ Bell, explained:
“The TA-125 has barely wavered ... packed with banks, tech companies, and industrial groups”.
Israeli banking stocks have capitalised on a high-interest
environment, while infrastructure, insurance, retail, and construction shares
also climbed. The construction sector in particular spiked on expectations of
post-war urban renewal needs.
Strengthening of the Shekel
From April to June 2025, the shekel strengthened about 8%
against the dollar—a two-year high—reflecting surging investor demand and faith
in macroeconomic underpinnings. The currency’s appreciation reversed
losses from the initial war months, signalling market confidence in Israel’s
prospects.
How Do Official Projections Compare?
Mixed Views from Credit Agencies
While local sentiment is bullish, international rating
agencies remain cautious:
- Moody’s: Maintained
a negative outlook, warning that war costs may be “more severe than is
currently assessed.” It predicts GDP growth of 2% in 2025 and 4.5% in
2026, after downgrading Israel’s credit by two notches in September 2024
because of “diminished institutional quality” and war spending needs.
- S&P
Global Ratings: In May 2025, reaffirmed Israel’s ‘A/A-1’ rating
with a stable outlook, highlighting robust fiscal management, healthy
reserves ($219b in international reserves, or 40% of GDP), and
expectations for 3.3% GDP growth in 2025.
- Bank
of Israel: Upgraded 2025 GDP growth projections to 3.3%, with an
even more optimistic 4.6% for 2026, on the back of investment, services
exports, and gradual economic recovery.
The Role of the Defence and Tech Sectors
Defence and high-tech have been lynchpins of resilience. As
noted by Katz (Leader Capital Markets) in The Times of Israel and as reinforced
by Business Insider, “Israel’s flagship stock index is booming ... and is
‘packed with’ banks, tech companies, and industrial groups.” Tech exports,
which constitute nearly 50% of total exports and about 20% of GDP, remain
central to growth, with investments in Israeli tech hitting a three-year high
in mid-2025.
“Game-Changer” or Temporary Surge?
Geo-Political Risk Settings
quoting Russ Mould at Business Insider:
“Presumably because a major war spanning the Middle East is not breaking out, the Netanyahu government seems to have US backing on foreign policy and security issues, and the country appears to be on the front foot in terms of achieving its military and geopolitical aims, at least for now”.
Ed Yardeni of Yardeni Research further argued (Business Insider):
“The Israeli stock market suggests that we may be witnessing a radical transformation of the Middle East now that Iran has been de-nuked”.
Market Confidence and Caution
Both Pagot and Katz (according to The Times of Israel)
insist markets are “forward-looking,” pricing in an assumed cessation of
hostilities and even a regional peace dividend. However, they warn that failure
to secure a sustainable Gaza ceasefire or renewed escalation could reverse
gains:
“If negotiations over a ceasefire come to a halt and the war gets stuck in the mud and drags on, we could see a deterioration and a potential retracement for the market”.
How Has Israel’s Economy Fared Under Fire?
Macroeconomic Impact and Recovery
As Noah Feldman of the Jerusalem Strategic Tribune outlined,
Israel’s economy recovered in Q1 2025, with annualised GDP growth of 3.4%. Tax
revenues are up due to a VAT hike, and the budget deficit is projected to
narrow to 4.2%. The debt-to-GDP ratio is stabilising at 69% after spiking
during the heaviest fighting. The Bank of Israel, OECD, and S&P all
commend Israel’s “resilience” but consistently caution that long-term growth
depends on desperately-needed labour and education reforms to widen workforce
participation, particularly among ultra-Orthodox and Arab Israelis.
Social and Human Costs
As reported by Wrobel (The Times of Israel) and Mohamed
(Business Insider), the wars have nonetheless imposed severe human losses,
destroyed thousands of homes, and led to substantial displacement. The pain of
these costs is part of ongoing debates about fiscal sustainability and the true
price of wartime economic resilience.
Why Are International Investors Returning?
Shifting Capital Flows
Global and domestic institutional investors are
“rotating out of US equities ... to come back and increase exposure to Israel,”
Jonathan
Katz told The Times of Israel. Contributing factors include:
- Reduced
risk premiums, reflecting optimism that Israel has contained the major
existential threat and could benefit from easing regional hostilities.
- Comparative
opportunity, as US and Chinese markets are seen as volatile or overvalued.
- Market
structure strengths, with Israel’s indices “packed with” sectors that
benefit from recovery.
Risks and Uncertainty
However, as highlighted by Moody’s and echoed in The Times
of Israel, risks remain—especially if the Gaza conflict drags on, further
regional flare-ups occur, or fiscal discipline lapses:
“S&P ... emphasizes that risks remain manageable for now, assuming conflicts do not escalate further ... the stable outlook hinges on conflict containment—a variable as unpredictable as it is critical”.
What Are the Lessons for Other Wartime Economies?
The Israeli case is attracting scholarly and policy interest
as a model of wartime economic adaptation. As noted in the OECD Economic Survey
and cited by Feldman (Jerusalem Strategic Tribune), high levels of ongoing
innovation and flexible fiscal policy were pivotal. Nevertheless, experts warn
that such explosive post-conflict rallies are rare, and maintaining momentum
depends on lasting reforms and an end to active hostilities.
Looking Forward: Will Resilience Endure?
Key Questions Analysts Are Tracking:
- Will
a Gaza ceasefire materialise and consolidate recent market optimism?
- Can
the Israeli government enact reforms broadening tech success into other
sectors and labour pools?
- Might
a regional “peace dividend”—possibly involving an expanded Abraham
Accords—unlock further investment and trade?
As summarised by The Times of Israel’s Sharon Wrobel:
“Financial markets are optimistic and forward-looking to beyond the war ... with Israel showing a fairly resilient economy ... especially in the high-tech industry.” Yet the “good news ... is already priced in by financial markets,” making the coming months crucial for turning projected recovery into sustained resilience.