It took eight weeks after the 9/11 attack on the US for the S&P500 to sustain its recovery to its pre-9/11 level. The rebound from its 9/21 low was substantial, returning 21% by mid-March. However, seven months after 9/11, the S&P500 dropped below the pre-9/11 level until the end of 2003. How does that compare to Israel's stock market experience since the October 7 attack?
The Israeli stock market plummeted in the three weeks following October 7. It hit its lowest point on October 27. Since then, it has rebounded, outperforming the US and the 'World ex-US' stock markets. The chart illustrates the relative performance of these markets. To measure Israel's stock market, we use the iShares Israel ETF (ticker EIS), which we compare to the iShares US (IVV) and the MSCI All Country World Index ex-US (ACWX) ETFs. The chart plots the ratio of the ETF values (the NAVs) to their values on October 27.
The red vertical dashed line in the chart marks October 6, 2023, and the green vertical dashed line marks October 27. The shock of October 7 produced Israel's market collapse, dropping 18% by October 27. What happened on October 27 to reverse the markets' direction?
There were significant events in the war around that date, but the US and the 'World ex-US' stock markets also dropped in unison with Israel's market from October 16 and reversed on October 27. On October 16, US bond yields started to climb, with the 10-year treasury yield peaking at 5% on October 19. That was the highest 10-year bond yield since July 2007. Stocks globally reacted negatively. Then, when yields began dropping on October 26, stocks globally reversed direction and climbed.
Surprisingly, the Israeli stock market's recovery dramatically outpaced the US and 'World ex-US' stock markets. It took six weeks for the Israeli market to recover to its pre-October 7 level, faster than the rebound the US experienced after 9/11. The Israeli market continued to rise; as of June 7, it is 35% above the October 27 low. That is considerably higher than the 21% rebound peak the S&P500 reached after its post-9/11 low. Eight months after October 7, the Israeli market is 12% above its pre-Oct 7 level. By seven months after 9/11, the S&P500 had dropped below the pre-9/11 level. The Israeli stock market has been resilient.
One way to gauge investors' expectations for the long-term impact of the war on Israel's economy is to look at its stock market. The resilience of Israel's stock market during the war reflects investors' positive outlook for Israel's business environment, even in the face of war.
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