Are financial markets in Israel predicting a near end to the war

ISRAEL - In Brief 17 Jun 2025 by Sani Ziv

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The Tel Aviv Stock Exchange extended its gains today, following Sunday’s 5.1% surge, with the TA-90 Index rising a further 0.82%. The advance came as Israeli military operations in Iran continued to progress, while rocket fire from Iran appeared to subside. Investor sentiment was further lifted by signs of growing U.S. commitment to dismantling Iran’s nuclear program—potentially including military involvement—as well as a G7 statement backing Israel and firm remarks by the German Chancellor, who stated that “Iran must never be allowed to possess nuclear weapons". The shekel continued to strengthen, reaching 3.50 per U.S. dollar. Long-term government bond yields fell to 4.53%, signaling a decline in perceived risk. Markets appear to be pricing in a scenario of a swift end to hostilities, with a decisive outcome that would remove both the missile threat and the nuclear threat to Israel. Such an outcome could have a long-term effect for Israel’s economy, including reduced geopolitical risk premiums and a quicker return to growth. A swift end to the war could significantly reduce the overall economic damage. Just a few days ago, we estimated that an eight-week conflict would result in a GDP loss of at least 2 percentage points, primarily due to widespread work stoppages and a sharp decline in activity across various sectors of the economy under heightened security restrictions. A quick resolution would likely mitigate much of this impact and could even trigger a rebound in growth as early as in Q3 and Q4. The fiscal implications are similarly dependent on the duration of the conflict. In previous estimates we put the cost of the war at NIS 40-60 billion—roughly 2.5% of GDP...