The Tel Aviv Stock Exchange often moves in the same direction as U.S. markets. While this has been a tough week for the bulls in the U.S., it's been even more difficult in Israel because of the new round of violence plaguing the area.
The Tel Aviv Stock Exchange's work week is Sunday to Thursday, so it is closed as normal on Friday. Both the benchmark Tel Aviv 25 and the Tel Aviv 100 indices fell almost 2.5 percent this week. By comparison, during the same time period the S&P 500 index has been down 1.9 percent. Year-to-date, the Tel Aviv 25 is up almost 9 percent, the Tel Aviv 100 up 7 percent.
Many of Israel's biggest name stocks that trade in the U.S. also had a tough week in the wake of Israel launching "Operation Pillar of Defense." Generic drug maker Teva Pharmaceutical Industries is down more than 2 percent since the Israeli Air Force started its campaign by targeting and killing the head of Hamas' military force Ahmed Jaabari on Wednesday in response to waves of rocket attacks against Israeli civilians in the days before. For the week, Teva, Israel's biggest private company, is down almost 4 percent.
Israeli defense company Elbit is down 4 percent since Wednesday. Given Imaging, the company famous for developing a camera that fits inside a pill, giving doctors a chance to look inside patients like never before is down more than 5 percent this week.
The iShares MSCI Israel index is down 3 percent since Wednesday.
Zach Herzog is head of international sales at Psagot Securities Brokerage, Israel's largest brokerage firm. He said it's clear this week has been a setback for Israeli stocks trading in Israel, the U.S., and Europe, but believes things could have been a lot worse.
"I think the local market has exhibited some real resilience over the last two sessions," he said. "The sell-off into Wednesday's close following the announcement of the Israeli strike against Jaabari wasn't a major fall. It was a knee-jerk reaction. Thursday's fall was largely in line with global equity markets trading."
Israel's Cellcom Israel trades on the New York Stock Exchange. The stock is up almost 5 percent this week on solid earnings released earlier this week. It's a sign, Herzog said, that proves his point: While some investors are certainly concerned about violence in Israel, fundamentals remain very important to the Israeli market.
In December 2008, Israel launched "Operation Cast Lead" in response to massive rocket fire from Gaza. The fighting, including a short-lived Israeli ground incursion, lasted about a month. In 2006, Israel fought another month long war against Hezbollah in Lebanon. In both cases the Tel Aviv Stock Exchange fell during the fighting but picked up in the final weeks and days of violence before going on to a full-fledged recovery, both times.
Two months after the second Lebanon war in 2006, the Israeli exchange was 5 percent higher than it was the day the fighting began in July. In 2009, it took only a month for the fighting to end before the Tel Aviv Stock Exchange was 12 percent higher than it had been when the Israeli operation began on Dec. 27, 2008.
"Historically, the impact of military operations is limited to the first one to two sessions, with the market returning to trade normally thereafter," he said. "I think this pattern is likely to be followed again in the current flare-up if no significant widening of the conflict takes place, like if Syria or Lebanon were to involve themselves."
—By CNBC's Jason Gewirtz
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No disclosure information wasw available for Zach Herzog or Psagot Securities Brokerage.