For months, barrages of Iranian ballistic missiles flying at Israel, escalating tension at the Lebanese front and fears of a widening conflict, did little to derail investor confidence in the Israeli financial market, pushing local stock indices to record highs.

That changed last week.

Around the globe, equity markets rallied while oil prices tumbled, fueled by optimism that a new US-Iran deal would end the war and reopen the crucial Strait of Hormuz to commercial traffic, taking pressure off energy supplies and reducing economic and geopolitical uncertainty.

But in Israel, which launched the war with the US on February 28, local markets had the opposite reaction, falling sharply amid a mass sell-off. The gap between the underperformance of the local stock market and the US market was the widest since March 2025, according to IBI Investment House.

“When rockets were flying in the heat of things, the local stock market was overly optimistic that the geopolitical risk in the long term would be lower, meaning the risk from Iran, and from Hezbollah in the north,” Leader Capital Markets chief economist Jonathan Katz told The Times of Israel. “There is disappointment in the market that the emerging new deal hasn’t shifted the paradigm at all, and there is concern that Iran is now rebuilding and will get money from the reopening of the Hormuz, which means possible further conflicts down the road, and a renewal of the nuclear threat.”

“Certainly, the ballistic missile threat never went away,” Katz said.

The emerging US-Iran deal is sending fears down the local market that the cards are flipping, with Tehran winning influence over both Washington and the regional agenda, after two and a half years of Israel steadily weakening Iran and its proxies.

Israeli officials are harshly opposed to the deal’s terms, which they criticize for resolving none of the war’s key goals — notably, eliminating Iran’s nuclear and ballistic missile programs, and creating the conditions for the fall of the regime.

The memorandum of understanding between the US and Iran also constrains Israeli action against Hezbollah in Lebanon, a fiat that Jerusalem........

© The Times of Israel