The first 100 days of the war in Gaza have brought immeasurable threats to both the people and the economy of Israel. With approximately 1,400 casualties, including 522 IDF soldiers, thousands injured, and 136 still held captive in Gaza, the human toll is devastating. Tens of thousands of civilians have been evacuated from Gaza border communities and the North, finding refuge in hotels. The economic cost is staggering, with estimates exceeding NIS 220 billion, and the fourth quarter of 2023 anticipated to showcase a sharp contraction in GDP. Amidst this grim reality, the Israeli financial markets have presented a perplexing contrast.

On October 6, as the nation grappled with the shock of the conflict’s impact, the Tel Aviv Stock Exchange defied expectations by rising 1.4%. After tanking in the first two weeks of the war, the shekel not only recovered its earlier lost ground, it strengthened against the dollar by approximately 3%. The main financial indices, including the corporate bond index and the yield on government bonds, reflected positive trends. This seemingly miraculous economic resilience can be attributed to several factors, shedding light on the intricacies of the financial world amidst chaos.

Global Financial Surge: The unexpected surge in the US stock exchanges, particularly driven by technology stocks and enthusiasm for the artificial intelligence industry, played a pivotal role. The momentum in New York’s financial markets triggered a positive chain reaction that extended to Israeli markets. Consequently, Israeli institutional investors had to readjust their portfolio and currency allocations, capitalizing on profits from US-listed holdings, leading to the strengthening of the shekel.

Shekel’s Paradoxical Strength: Despite the economic havoc wreaked by the war, the shekel exhibited a remarkable strengthening of almost 10% against the dollar. Factors influencing this surprising trend include a weakened global dollar, institutional selling of dollars in response to increased foreign shares in pension portfolios, and a favorable balance of dollars entering Israel due to the decline in business activity.

Skepticism towards Prolonged Conflict: Despite official assurances from Prime Minister Netanyahu and other officials regarding the anticipated duration and goals of the war, investors remain skeptical. The belief that Israel is likely to heed American influence and reach a ceasefire sooner rather than later has bolstered confidence in the markets.

Market’s Disbelief in Official Statements: Investors seem to discount Netanyahu’s assurances, viewing them as politically motivated rather than reflective of actual economic and military strategies. Past instances where promises made during the conflict were contradicted by subsequent actions have led to a lack of trust in official statements.

Fundamental Optimism and Historical Precedence: The investing public’s inherent optimism, coupled with historical data, suggests that crises eventually pass. Despite the grim reality of the first 100 days, investors are optimistic about a resolution to the conflict and a subsequent economic recovery. Past experiences, including Israel’s previous wars and the recent COVID-19 pandemic, highlight the resilience of the market.

While the financial markets have demonstrated an unexpected buoyancy during the initial phase of the war with Hamas, experts caution against assuming prolonged stability. Potential challenges, including global economic downturns, shifts in interest rates, and geopolitical escalations, could pose new threats to Israel’s financial landscape in the coming months.

Nevertheless, there is a hope that transcends the bounds of financial and economic resilience. All we need to do is to look at a bigger picture. The enduring existence of Israel, despite the myriad of challenges, confirms that there is God who guides us, both in times of prosperity and adversity. We firmly hold the belief that the same God who sustained this nation throughout history will ensure its deliverance even in these challenging times. Our path forward necessitates patience as we steadfastly look heavenward, recognizing that true strength lies not in our capabilities but in his providence that guides us. And as long as we do that, the economy and all that surrounds it, will eventually rebound and come back stronger.