It's one of those economic paradoxes that makes you question everything you thought you knew about markets and conflict. Israel—a country literally fighting on multiple fronts—has seen its stock market reach all-time highs, with the Tel Aviv Stock Exchange's TA-35 index climbing more than 10% since October.
This isn't normal. Not by a long shot.
I've covered financial markets for nearly a decade, and the textbook reaction to warfare is supposed to be investors running for the exits, not pouring in capital. Yet here we are.
The Resilience Paradox
What we're witnessing is something I've started calling the "resilience paradox"—when economies don't just survive existential threats but somehow manage to thrive amid them.
Look at Israel's economic makeup. It's heavy on tech, cybersecurity, defense, and healthcare. These aren't just random sectors; they're either direct beneficiaries of conflict or remarkably insulated from it. Nearly half the companies on the TA-35 have significant global operations, meaning they aren't at the mercy of local conditions when things get dicey.
Then there's what you might call "crisis muscle memory." After decades of periodic conflicts, Israeli financial institutions don't panic—they execute. Market circuit breakers, emergency protocols, contingency plans... these aren't theoretical concepts gathering dust in some regulatory binder. They're procedures that have been tested and refined through real-world crises.
An old trader in Tel Aviv put it perfectly to me last year: "Markets hate uncertainty, except when they're used to it." That's stuck with me.
Central Banking as Theater (That Works)
The Bank of Israel deserves a standing ovation here. When the conflict erupted, they didn't hesitate—announcing a $30 billion forex program to support the shekel and signaling they were ready to buy government bonds if needed.
This is monetary policy as performance art. The audience (investors) needs to believe the show (intervention) will go on if necessary. In Israel's case, the central bank's credibility was strong enough that the mere promise of action prevented the panic selling that typically accompanies war.
I've seen central banks fumble this kind of messaging before. The difference here? Experience and conviction.
Foreign Investment: Surprisingly War-Agnostic
Here's something that initially confused me: foreign investors haven't packed up and left. Some have actually increased their positions. Strange, right?
Not really, when you dig deeper. Crisis creates buying opportunities for investors with longer time horizons. And Israel's innovation ecosystem—the "Start-Up Nation" foundation that's produced global companies like Wix, Mobileye, and dozens of others—remains fundamentally attractive regardless of the headlines.
The country's startups still managed to raise over $1.5 billion last quarter. That's down from the venture capital frenzy of 2021 (what isn't?), but remarkable considering, you know... war.
Market Patriotism Is Real
There's another factor at work that doesn't get enough attention—what I think of as "market patriotism." When your country is under threat, buying local stocks becomes more than an investment decision; it's an act of solidarity.
This isn't just warm fuzzy sentiment. The Tel Aviv Stock Exchange's data shows domestic retail investor participation has jumped nearly 15% since October. That's significant.
(Having reported from other conflict zones, I've seen similar patterns elsewhere, though rarely this pronounced.)
The Investor's Takeaway
So what can the rest of us learn from this anomaly?
First, sector composition trumps geography. Countries with innovation-focused economies show surprising resilience even when bombs are falling. The old investment adage "it's not where you are, it's what you do" applies to nations as much as companies.
Second, institutional memory matters. A lot. Markets that have weathered multiple crises develop antibodies that protect them from the panic that would devastate less experienced economies.
Third—and this is crucial—central bank credibility is everything. The Bank of Israel's actions worked because people believed they would follow through if needed. Trust, once established, becomes its own form of economic capital.
Finally, necessity really is the mother of invention. Some of Israel's most successful companies emerged during previous conflicts. The current situation, tragic as it is, will likely accelerate innovation in ways we can't yet predict.
None of this diminishes the human cost of conflict. Markets can climb while communities suffer—that's the cold reality of finance.
But for investors trying to navigate an increasingly chaotic global landscape, Israel's financial resilience offers a masterclass in how markets sometimes defy our most basic expectations.
In investing, as in physics, exceptions to rules often teach us more than the rules themselves. And Israel's market performance during wartime? That's one exception worth studying.
