On Friday, the credit agency Moody’s issued a momentous announcement: for the first time ever, Israel’s credit rating was downgraded from A1 to A2. While this marked a precedent-setting move in Israel, it did not seem to sway the investors in the Tel Aviv Stock Exchange. The local flagship index, Tel Aviv 35, which trades the largest companies in Israel, only declined by about 0.6%, with the exception of one index – the banking index, which fell by 1.7%. Although this represents a negative trend, it is not catastrophic.
Meanwhile, history was also made on Wall Street as the S&P 500 index broke its all-time record and closed above 5,000 index points. This is the second time in the last month that the index has achieved this feat. However, Alex Zabrzynski, chief economist of Meitav investment house warns that “the behavior of the global stock market indicates that it has overheated.”
As a result of Moody’s decision to downgrade Israel’s credit rating to A2 and further downgrades are expected, there will be an increase in risk on both sides of the barrier. In Israel, higher debt costs will be imposed on all companies in the economy and will also be passed on to households. On Wall Street, as the surge continues and there is a chance of another downgrade coming soon.
The Israeli stock market has underperformed its American counterpart in recent years. From October 2023 to now (the beginning of its current rally), S&P 500 increased by around 22% while Tel Aviv 35 increased by about 13%. Bernard Menor believes that America’s market is still better than Israel’s despite geopolitical risks being higher due to ongoing tensions between nations like Iran and other factors affecting regional stability.