Why Israeli Stocks Rose During the Iran-Israel Tensions – But Fell During the Hamas Conflict


Israeli equities have shown surprising strength during recent market sessions, particularly during the height of the Iran-Israel standoff. This stands in sharp contrast to investor behavior during the onset of the Israel-Hamas conflict, when capital fled the market. What explains this shift in sentiment?
Well, Israel’s markets reacted very differently to two recent wars because the starting points, policy backstops, and perceived trajectories of each conflict were different.
When Hamas attacked on October 7, 2023, investors saw an open-ended ground war, a domestic mobilization without a clear historical analogue, and little clarity on domestic economic costs, so Israeli markets declined and largely diverged from global markets.
By contrast, the 2025 strikes between Israel and Iran were brief, mostly remote-fire exchanges that (at least for now) look contained. Investors saw a chance to buy quality assets with the benefits of solid macro data and domestic monetary support, especially in many Israeli tech and defense names.
So, to summarize some key points:
- The Gaza conflict was viewed as an open-ended, high-risk ground war. The Iran clash appeared shorter and contained.
- Israeli stocks were generally considered to be discounted entering 2025 (e.g., by earnings ratios).
Short covering and passive fund flows have also helped the 2025 rally, especially as MSCI reclassification boosted foreign interest. - Investors prioritized fundamentals and policy credibility over headline conflict severity.