Despite war, Tel Aviv stocks outpace Wall Street in 2025

The American bombing of Iran’s Fordow nuclear facility on Saturday night triggered a wave of optimism on the Tel Aviv Stock Exchange (TASE), setting the stage for a day of gains. As investors woke Sunday morning to news of the attack, markets surged on hopes that U.S. involvement in the conflict would expedite the elimination of what many perceive as Israel’s existential threat from Iran.

The sharp early-morning gains moderated as the trading day progressed. The TA-35 index closed up 1.5%, while the broader TA-125 rose 1.8%. The standout was the construction index, which soared 5.2%, fueled by investor expectations that urban renewal and reconstruction efforts would boom once the war ends. The rationale: extensive building renovations will be needed, and demand for construction permits is likely to rise, given that two-thirds of homes in Israel's central region lack secure rooms.

Ori Tuval, chairman of Allamanda Capital, noted that defense stocks had seen dramatic gains, often in the tens or hundreds of percentage points, since the war began. "The American strike, along with Israel’s successful campaign against Iran, signals we may be nearing the end of this conflict," Tuval said. "Defense stocks have essentially acted as a form of insurance. But with a new economic reality forming, a natural revaluation is occurring."

Still, Tuval believes the long-term outlook for the sector remains strong. “The wars in Ukraine and the Middle East haven’t ended, and the global demand for defense technology, especially in Europe, will only grow. The U.S. has made it clear it will no longer carry the burden alone.”

Thanks to Sunday’s gains, 38 out of TASE’s 55 indexes set new records. Since the start of 2025, the TA-125 has risen 20.3%, far outpacing the S&P 500’s 1.7% gain and even outperforming Germany’s DAX40, which is up 16.6%. Over a five-year horizon, the TA-125 has returned 103.5%, slightly edging out the S&P 500’s 98%, closing the gap that opened in 2023 amid political unrest and the October 7 war.

Investor appetite for Israeli assets had already been growing since last summer’s assassination of senior Hamas official Ismail Haniyeh in Tehran, followed by the beeper operation in Lebanon and the elimination of Hezbollah leader Hassan Nasrallah. These events marked a broader geopolitical shift that restored investor confidence. Israeli savers began reallocating funds toward local assets, especially through the provident market (including pension and training funds) managed by institutions with strong domestic exposure.