The TA-90 index, which tracks the 90 largest companies on the Tel Aviv Stock Exchange not included in the TA-35, faced a turbulent conclusion to its record-breaking 2025 run. While the index has significantly outperformed global benchmarks throughout the year, the final days of December saw a convergence of geopolitical uncertainty and domestic fiscal policy clashes that triggered a broad-based sell-off.

Fiscal Policy Threats and the Banking Sector Decline

The primary catalyst for the mid-week downturn was an escalating dispute between the Ministry of Finance and Israel’s major lenders. Finance Minister Bezalel Smotrich warned that he would double a proposed special tax on excess profits for 2026-2030 if banks withdrew public benefit packages introduced during the war. This “excess profits tax”—initially proposed at 15%—is intended to capture returns exceeding 50% of the banks’ historical average, but the threat of a 30% rate sent the TA-Banks index tumbling by 4.2%. As the TA-90 includes several secondary financial institutions and relies on broader market liquidity, it was heavily impacted by this regulatory risk premium.

Insurance Sector Correction and “Profit-Taking”

The week also witnessed a severe downward correction in the insurance sector, which had been one of the top-performing segments earlier in the week and throughout 2025. The TA-Insurance index plunged 6.89% on Thursday as investors moved to lock in gains before the fiscal year-end. Major components of the index, such as Harel (down 7.59%) and Migdal Insurance (down 7.27%), led the decliners, illustrating a classic technical retreat following an extended rally. This volatility was exacerbated by the OECD’s recent economic outlook for Israel, which noted that while private consumption is driving growth, high deficits and global trade tensions continue to pose significant headwinds.

A Year of Resilience: Tech and Defense Standouts

Looking at the broader financial performance, the TA-90’s 45.94% annual increase remains a testament to the economic recovery fueled by a vibrant high-tech sector and defense exports. Even during the end-of-week slump, specific stocks like Next Vision (up 1.39%) and Israel Shipyard (up 2.08%) showed strength, highlighting a “flight to quality” toward companies with secure international contracts. The S&P Global Ratings revision of Israel’s outlook to “Stable” in November further reinforced this long-term confidence, citing the ceasefire agreement and a projected GDP growth of 5% in 2026 as key stabilizers.

Looking forward, the outlook for the TA-90 is cautiously optimistic, contingent on the Bank of Israel’s next interest rate decision on January 5, 2026. With inflation hitting a 4-year low of 2.4% and the central bank having delivered its first rate cut to 4.25% in November, a continuation of the easing cycle could provide the necessary liquidity to overcome the current tax-related jitters. Investors should monitor the 3,722 support level in the coming week; failure to hold this mark could invite further downside risks, whereas a resolution to the bank tax dispute would likely trigger a rapid rebound toward the 52-week high of 3,861.35.