Knesset and US Midterms Converge in Rare Test for Israeli Investors
Investors in Israel face a rare convergence of Knesset elections and US midterms. Analysts examine historical data to assess how political uncertainty will impact the Tel Aviv Stock Exchange and Wall Street.
Investors in Israel face a rare intersection this week as the Knesset elections and the US midterm elections coincide. Both electoral events carry significant weight for their respective countries, but for local investors, both can influence investment portfolios. While domestic elections shape economic policy expectations affecting the market, US elections impact the local exchange through companies dually listed in the US and the high correlation between Wall Street and Tel Aviv.
Historically, this combination is extremely rare. Over the past 40 years, such proximity between US midterms and Knesset elections occurred only twice—in 2022 and 1988. In 1988, major Tel Aviv indices had not yet been launched, making comparisons impossible. In 2022, the local bourse adopted a wait-and-see stance between the elections, while Wall Street experienced volatility largely driven by Federal Reserve rate hikes and inflation data rather than the vote itself.
Tel Aviv: The Market Craves Decisiveness
History on the Tel Aviv Stock Exchange shows that post-election market direction depends heavily on whether a clear path to forming a government emerges. The TASE Research Unit, examining ten elections since 2003, found that the TA-125 index generated an average total return of 16.4% in the 12 months following elections, compared to a long-term average of 11.5%. However, the S&P 500 also rose during those periods by 13% in shekel terms, making it difficult to isolate the elections' direct impact.
When elections end without a clear outcome, the main impact reflects on the market prior to the ballot. In the three months leading up to inconclusive elections, the TA-125 index dropped by an average of 5.3%, compared to a negligible 0.2% decline ahead of decisive elections. Yaniv Pagot, Head of Trading at the TASE, notes that the current market weakness suggests investors are already pricing in an inconclusive outcome, leaving greater upside potential if a decisive government is formed.
Wall Street: The Surprising Edge of Political Division
On Wall Street, the picture differs. According to Bloomberg, investors are pricing in scenarios where Democrats capture Congress. Wells Fargo analysis indicates that the S&P 500 has risen in the 12 months following every US midterm election since World War II, posting an average total return of 18.6% including dividends.
Research from Carson shows that under a Republican president, political division on Capitol Hill yields an average 13% return in the following year, outperforming periods of single-party control. Analysts explain that a divided Washington often blocks harmful legislation, providing a stabilizing effect for equity markets, particularly amid regulatory debates surrounding artificial intelligence.
Between Jerusalem and Washington: What Matters More?
Yaniv Pagot downplays the immediate impact of the midterms, noting that the market will quickly pivot back to core drivers like AI and interest rates. Meanwhile, Alex Zbezinsky, Chief Economist at Meitav Investment House, argues that the Israeli ballot holds greater domestic weight. Zbezinsky emphasizes that local markets are waiting for clarity on economic policy and the budget, though an escalation with Iran remains an external risk capable of shaking both Tel Aviv and Wall Street.
