July began with foreign markets continuing to storm forward and reaching new heights.
The markets took every positive scenario and largely ignored the geopolitical risks. The uphill climb continued until the middle of the month when new highs were set in the world's leading indexes.
The Nasdaq, S&P 500, and the German DAX hit all-time records, reaching levels of 18,671 points, 5,670 points, and 18,893 points, respectively.
The local market started the month inelegantly late, and it seems that it tried to reduce the large gap that opened with the world's leading indexes.
The TA 35 index recorded an all-time high in the middle of the month when it scratched the 2,080-point level, an increase of 11.5% since the beginning of the year. It caught up to the increase with the DAX and reached about half of the increase of the Nasdaq and the S&P 500 for the period in question.
The trigger for the rise in the middle of July in the local market was the optimism stemming from the feeling that a plan for the release of the hostages and the cessation of fighting in the South was maturing.
An agreement of this kind was expected to affect the northern sector as well when the prevailing feeling was that none of the parties was interested in escalation; the uncertainty that characterized the market would subside, and the Israeli indices would catch up with the large gaps against the leading foreign indices which, since the beginning of the war, have been getting wider and wider as time has passed.
July was characterized by a series of unusual events that reminded the markets that the risks and uncertainties may not be sufficiently priced and are significant, especially in the current period, and do not intend to go away so soon.
During the month, US President Joe Biden announced that he was withdrawing from running for another term. This was mainly due to his weak and confused appearance in the televised debate against former President Donald Trump at the end of June.
Trump survived an assassination attempt on his life, which ended with a bullet hitting his right ear. Just a few centimeters to the right and the leading presidential candidate would have been killed, leading the US, the largest and leading economy in the world, to chaos.
American society seems more polarized than ever, and the flames are getting stronger as time goes by and the November 5 elections are getting closer. Vice President Kamilla Harris, who currently seems to be closing the gaps in the polls against Trump, will probably try to step into the shoes of the retiring president. Now, it can be said with great certainty that the political uncertainty will continue until Election Day and maybe even beyond, considering the previous round of elections.
Even locally, circumstances changed, reminding us all how fluid things are. The optimism for calm and a hostage deal that fueled the Israeli capital market was based not least on wishful thinking and denial of the complex reality and the burning region.
A drone launched by the Houthis landed in the heart of Tel Aviv and claimed the life of a local citizen, which led to a decisive Israeli response. The response was to set fire to the Hodeidah port area in Yemen, leaving a lot of destruction and dozens of dead and wounded, and also a message for the Houthis.
Not a few days passed, and a missile landed and took the lives of 12 children on a soccer field in Majdal Shams, and the Israeli response to this was also not long in coming. A missile landed in the Dahieh district in the heart of Beirut, and a few hours later, an unidentified missile penetrated the window of another murderer in the heart of Tehran.
These actions reminded us all that geopolitical risks are sometimes ignored, but they definitely exist. These risks may negatively impact the risk premium of the local economy, the financial stability and credit market of the State of Israel, and, as a consequence, the local firms.
July, especially its second half, emphasized that the rising level of uncertainty in the world markets could accompany us for a long time and cause the markets to be particularly volatile. When the risks hover and threaten the world markets, quite a few of them are trading at all-time record levels.
The last trading day of July was a clear example, as the US trading indices turned sharply. The first two trading days in August were bright red, with the Nasdaq falling by 10% from the record set in mid-July.
Security and political uncertainty, along with the stuck hostage deal and the heavy fear of further credit downgrades, don’t add optimism to the local market when trading begins in August.
This article was written in cooperation with Mercantile Bank