Meitav Review Warns of AI Bubble Parallels and Israeli Economic Gaps
Meitav's October 2026 review highlights a widening gap between local economic weakness and stock market performance in Israel, while warning of AI bubble risks and monetary uncertainty in the U.S.
The macroeconomic and market review by Alex Zvijezky from Meitav Investment House, published in October 2026, highlights widening gaps between Israel's domestic economic conditions and the performance of the local stock market, while raising questions about the sustainability of Wall Street's rally. While inflation in Israel remains low and economic activity shows signs of weakness, the United States is seeing massive expansion in artificial intelligence infrastructure, alongside stock market phenomena reminiscent of the dot-com bubble in 2000.
One of the most concerning points in the review addresses the decoupling between technology stocks and other sectors in the S&P 500 index. According to Meitav, the correlation between tech stock performance and the rest of the market has dropped to zero and recently turned negative. This unusual phenomenon mirrors market behavior in September 2000, just prior to the collapse of technology shares.
Meitav notes that this gap may indicate that tech stocks are increasingly driven by AI expectations rather than broader economic fundamentals. Meanwhile, the U.S. economy presents a mixed picture: significant investments are concentrated in infrastructure and data centers required for AI development, while private consumption weakens and consumer goods manufacturing staggers.
Another concern involves supply chain price pressures. Although the U.S. consumer price index appears relatively stable, Meitav identifies rising prices in energy products, electrical equipment, and technological components. The review notes that AI infrastructure investments and the war in Iran contribute to these pressures. If these intensify, the Federal Reserve may need to consider further interest rate hikes, a move that could weigh on the stock market and trigger sharp declines.
According to the review, warning signs are not limited to the United States. In China, sharp drops have already been recorded among leading artificial intelligence tech companies. Shares of the group known as China MAG7 have fallen by about 40% from their peak. Meitav explains that fierce competition, the use of free models, and difficulties in generating sufficient returns on massive infrastructure and development investments are hurting profitability expectations.
However, the review points out a fundamental difference between China and the United States: the Chinese government bears a significant portion of the risk and finances the establishment of data centers, meaning the fear of a financial shock spreading to the local economy may be more limited. The declines in China serve as an example of the risks inherent in the gap between high AI investments and the ability to generate profits from them.
In Israel, the economic picture is different. The inflation environment remains low compared to the global trend across most index components, except for housing. Meitav attributes this, among other factors, to long-term structural elements, including the strengthening of the shekel, the development of the natural gas sector, and increased competition driven by online shopping.
The review notes that the primary risks for rising inflation in Israel come mainly from outside the local economy via imported inflation, alongside the expected cancellation of the fuel excise tax exemption. In the absence of significant pressures from local demand, Meitav estimates that it is difficult to justify the current interest rate level over time, and it could drop toward 3% in the coming months.
Alongside low inflation, economic activity in Israel continues to show weakness. The housing market is stagnating, and prices for non-subsidized new apartments fell by 0.8% in August, the sharpest decline since the beginning of 2023. The growth rate of real sales in retail chains also approached zero, while the trade deficit widened and approached 50 billion dollars.
Despite these figures, the local stock market recently outperformed global markets. Meitav notes that this gap may be related to expectations for political developments, but the economic data itself does not point to a clear strengthening of activity in the economy.
Ultimately, the review presents two central questions for investors: whether the rallies in U.S. tech stocks rely on overly high expectations for future profits, and whether the weakness in Israel's economic activity will lead to further monetary easing. Meitav warns that developments in the AI market require close attention, especially given the resemblance to past periods when investor enthusiasm detached from economic reality.
