Tel Aviv Stock Exchange. The screens were painted green again (Photo: Reuven Castro)
The Nasdaq Composite closed the first trading week of May at 12,235 points, its highest closing price since the beginning of the year, up 16.9%. On Friday, Apple's first quarterly report for 2023 showed better-than-expected results, jumping 4.7%.
The Nasdaq index skews technology companies that have been at the center of global attention, especially since the outbreak of the COVID-20 pandemic. The index is expected to face difficult challenges on its way up as the world's largest economy grapples with inflationary pressures, high interest rates and fears of a slowdown to the point of recession.
The local stock exchange, which suffered from significant underperformance since the beginning of the year relative to most of the world's leading indices, began to close gaps at a dizzying pace, as the risk of approval of the legal reform without broad consensus and the leakage of investments from the local market subsided for the time being. In the eyes of investors, acquisition opportunities were created, with the Israeli market looking attractive when examining the earnings multiples of local indices to the world's leading indices.
Of particular note is the real estate index, which jumped by about 4 percent since April 12, and the banks index climbed by 8.4 percent. The Tel Aviv 35 Index made do with a more modest increase during this period, indicating an increase of about 4.8 percent. Whether the correction we have experienced in the past two weeks reflects a change in trend or a rebound to the wave of declines experienced by the market, we will have to wait and see.
Didn't finish raising interest rates. Jerome Powell (Photo by Getty Images, Drew Angerer)
Daniel Georgie (Photo: PR)
May opened with the tenth consecutive 0.25 percent increase in the US federal funds rate from last week. Market assessments are that this is the latest interest rate increase. This sentiment was also contributed by the Fed Chairman in a speech he gave immediately after the announcement of the interest rate increase. His speech was interpreted as much softer than the previous times, omitting the phrase 'that more raises will be needed'.
The massive interest rate hikes in the US indicate the Fed's determination to fight inflation with full force and put it on a path of 2% per year. However, even a high interest rate in the region of 5.25% (the highest since 2007) has negative effects on the US economy and could lead to a severe slowdown and possibly even a recession.
Other global factors that are liable to weigh on the capital market are the fear of an escalation in the war between Russia and Ukraine that may spread to other regions along with the risk of a jump in commodity prices, a resurgence of the trade war between the US and China, which is breathing down its neck, and geopolitical tensions that could lead to war when Iran abandons the dialogue and seems to be heading toward accelerating its nuclear program.
All these and more may be an obstacle and return the red color to the markets, which seems to ignore the risks and are painted bright green.
The writer is the Director of the Israeli Securities Desk at Mercantile Bank.
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