Israeli shares drop as renewed Hamas, Houthi attacks fuel fears of prolonged fighting
Major indices slide as investors weigh threat of return to intense fighting and the effect of a prolonged war on the country’s finances and economy
Sharon Wrobel is a tech reporter for The Times of Israel
Shares on the Tel Aviv Stock Exchange dropped and the shekel weakened this week as investors yet again braced for uncertain times amid renewed fighting in Gaza, raising concerns that a prolonged war and higher defense spending will take a toll on the country’s already dented finances and economy.
“Negative sentiment has been building up in recent days as investors are concerned that the renewed military offensive against Hamas in Gaza may not be a limited event but the resumption of a broader campaign and a prolonged war,” Ronen Menachem, Mizrahi Tefahot Bank’s chief markets economist, told The Times of Israel. “There is market concern that a resumption of intense fighting will fuel defense and civilian costs and spending.”
The Tel Aviv Stock Exchange’s benchmark TA-125 index dropped 1.5% this week. The TA-35 index of blue-chip companies fell 0.4%, while the TA-90 index, which tracks the shares with the highest capitalization not included in the TA-35 index, dived 4.3%. The TA-Insurance index declined 3.9% and the TA-Gas and Oil Index was down 5.9%. The shekel weakened 0.5% and is trading around NIS 3.67 per dollar.
Israel resumed fighting by ground and air against Hamas in the Gaza Strip overnight Monday-Tuesday citing the terror group’s “repeated refusal” to free the remaining 59 Israeli hostages it holds and who were taken captive during its October 7, 2023, onslaught on the country’s southern communities, and over disagreements on continuing the ceasefire agreement.
Fighting in Gaza, and Houthi attacks on Israel had stopped for roughly two months, following the start of the implementation of the hostage-ceasefire deal in Gaza in January.
Menachem said that amid prospects of a continued ceasefire and the release of hostages, Israel’s stock market had outperformed in recent months. Since the start of the year, the TA-35 index was up 4.5%, the TA-90 index had increased 3.1%, and the TA-125 index had jumped 4.3%.
War costs since the October 7 onslaught have spiraled to NIS 112 billion ($31 billion) as of the end of 2024. Israel’s budget deficit, which reached 6.8% of GDP in 2024, narrowed in recent months due to a continued downward trend in war-related costs and expenditure as the intensity of the fighting abated.
On Thursday afternoon, Hamas fired three long-range missiles at Israel, the group’s first attack on central Israel since October 7, 2024, the one-year anniversary of the invasion that started the war. The rocket attack from Gaza came hours after a missile attack by the Iran-backed Houthi rebels in Yemen, who again launched a missile on Thursday evening.
“Renewed fighting fuels uncertainty over the defense and civilian costs of the war effort and the government’s ability to meet the spending limits it set itself for this year at a time when lawmakers need to pass the 2025 budget,” said Menachem.
Early on Thursday morning, lawmakers voted in favor of the final reading of the so-called Economic Arrangements Law, a key hurdle in passing the 2025 state budget. The Arrangements Law — which determines how funds will be disbursed — is usually the final step before passing the budget.
The current budget for 2025 sets the deficit target at a maximum of 4.9% of gross domestic product, higher than an initial figure of 4.4%. Total spending will be NIS 619 billion ($169 billion), 13.6% higher than last year.
Failure to approve the budget by March 31, will lead to the automatic fall of the government and trigger new elections.
Times of Israel staff and Reuters contributed to this report.
