The Tel Aviv 35 (TA-35) index entered the final full trading week of 2025 by continuing its historic bull run, marking its 60th record high of the year. However, the Capital market faced a sudden reversal in the final session, as thin holiday liquidity and sector-specific profit-taking tempered the year-end rally. This juxtaposition of record-breaking growth and intraday volatility underscores a maturing recovery for Israeli equities following a period of high regional uncertainty.

Record Highs and a Technical Retreat

The week began with bullish momentum as Bezeq and Teva led the market to a new peak of 3,681.73. This rally was briefly sustained through mid-week, with the index touching a lifetime high of 3,745.68 during intraday trading on Wednesday, December 24. However, the trend broke sharply on Thursday when falling stocks outnumbered advancing ones by 338 to 146. Large-cap insurance firms, including Harel (down 7.59%) and Menora Miv Hld (down 7.48%), faced aggressive selling, likely driven by year-end tax-motivated repositioning and a re-evaluation of risk premiums as the fiscal year concludes.

Monetary Policy as a Catalyst

The backdrop for this year’s performance has been a decisive shift in monetary policy by the Bank of Israel. Following a surprise 25-basis-point interest rate cut to 4.25% in late November, market sentiment has remained largely positive, as lower borrowing costs are expected to stimulate real estate and consumer activity. Governor Amir Yaron has signaled a cautious path forward, with the central bank projecting the rate could drop to 3.75% by September 2026, provided that geopolitical stabilization continues. This projected easing cycle has been a fundamental driver for the TA-35, which has seen its 5-year value increase by 146.71%.

Global Integration and Sectoral Standouts

While traditional sectors faced pressure this week, the technology and defense segments continued to attract global interest. Next Vision bucked the downward trend on Thursday, gaining 1.39% following its largest-ever order, while ICL Group surged 4.75%. These gains highlight the continued attraction of the Israeli tech sector, which has secured over $15.6 billion in funding during 2025. For international investors, the USD/ILS exchange rate, which settled near 3.25, remains a critical metric to watch as it influences the attractiveness of ILS-denominated assets.

Looking ahead, the outlook for the TA-35 in early 2026 hinges on the Bank of Israel’s next interest rate decision on January 5. While the recent 3.13% dip indicates a cooling of the recent “overbought” conditions, the wyckoff process observed by technical analysts suggests a potential V-shaped recovery if geopolitical truces hold. Key risks to monitor include the approval of the 2026 budget and any renewed inflationary pressures that could stall the rate-cutting cycle. Investors should focus on the 3,600 support level; maintaining this floor will be essential for the index to challenge its 3,745 peak in the new year.