Market Update – July 2025

Q2 2025 contrasts strongly with Q1 2025. Stock markets for the year to date to June appear to show relative optimism compared to Q1, which was marked by stark pessimism resulting from the uncertainty surrounding President Trump's Tariff plans.

Investors in the Israeli Tel Aviv Stock Exchange were encouraged by the IDF’s achievements and the resilience of the Israeli economy to the war. As a result, the local stock exchange finished with an exceptionally strong 23.5% gain in shekels, which is among the strongest returns of any developed country globally, so far for 2025. Europe’s STOXX 600 Index returned just 8.5%, although Germany’s DAX Index saw a notable increase of 18.2%. In contrast, the popular S&P 500 Index posted a more modest gain of 6.2% year-to-date. The MSCI World equity index produced a positive 10.3%. Normally, it’s the opposite, whereby the USA does better than the rest of the world. We expect this gap to close or even reverse over the balance of 2025. The bond market has performed relatively well and has been a welcome safe harbor for conservative investors through the volatility.

Q2 2025 shows investors once again the value of disciplined investing. Only three months ago, markets were over 20% lower than they are today on the assumption that major economic damage would result from Trump’s two-tiered tariff system. Even though he appeared to back down from the second tier, tariffs are higher now than they have been for at least 80 years. The economic data to support or reject any economic damage theory is still not yet available and is, at best, guesswork. Yet the market has fully recovered to December peak levels.  This is the nature of stock market investing. One should stay within one’s risk tolerance so that one can ride out the next market crisis and not be pressured to sell during the next crisis. For those investors who felt March/April drawdowns tested their risk tolerances too much, they can consider de-risking now. For those who were not too bothered, well done. We continue to believe that in the long term, stocks will continue to do better than bonds, and therefore, investors should be at the maximum equity they can tolerate from a risk point of view.

The tariff saga, along with other disruptive policies, will remain a dynamic feature of this Trump administration; however, I feel the worst market reaction is behind us. Other surprises may emerge. President Trump is pushing for more aggressive rate cuts and is in open conflict with Fed Chair Jerome Powell, potentially even considering replacing Powell before the end of his term in May 2026. The market will not like to see the intended independence of the Federal Reserve challenged. However, the market would like to see lower rates, so time will tell. In terms of economic data, there are some concerning bits of consumer data; however, the probability of a recession in the USA remains low. E.g., certain areas of the debt market are showing higher delinquencies. The main economic issue in the USA is the level of government debt, at $36 trillion, with no possibility of either repayment or default. The consequences will be inflationary and reduced government spending as the interest burden increases over time (currently $1.3 trillion per year).

Looking briefly at Israel, the elimination of the Iranian threat and the restoration of Israeli deterrence had a positive impact on investor sentiment and the shekel's strength. Despite the ongoing Gaza war, which carries a heavy economic and emotional toll, the Israeli economy in 2025 is showing strong growth. 3.5% GDP growth in Q1, compared to an OECD average of 1.6% is an excellent result, especially considering the challenges. However, the war does cost, and the government budget deficit is projected to be over 6% (up from 4.9% expectations before the Iran campaign). Whilst still a deficit, this number again compares favorably with other developed nations that are not at war. Alongside a 4% unemployment rate, 3.1% inflation, and an even stronger projected growth rate, all support the TASE super strong stock market results.

We do not expect shekel interest rates to decline soon, and we also anticipate that Israeli companies will gradually return to "business as usual" later this year. Banks, insurance companies, and defense technology firms are already reporting robust performance and growing order backlogs. These companies have limited exposure to global trade tariffs, making them a hedge against volatility driven by global tariff disputes.

Since December, the shekel has strengthened significantly; partly due to USD weakness and partly due to shekel strength. This has significant implications for investors exposed to either the USD reported in shekel or the average new immigrant to Israel who kept the bulk of their wealth in USD.  According to an internal model by the Bank of Israel, the dollar’s equilibrium rate is estimated at 3.1 shekels per dollar. If the security situation stabilizes and internal political polarization eases, this becomes very probable. Furthermore, any intervention by the Bank of Israel to weaken the shekel (as they have done many times in the past) will be a serious infringement on President Trump's international trade rules.

Another interesting market story that people tend to forget is the Nvidia story. In Q1, a story broke about Deepseek, a Chinese cheaper alternative to Nvidia’s expensive chips, and the market punished Nvidia. Between this and the tariff drama, Nvidia was down 37% from its December peak by early April, and the narrative was that Nvidia cannot compete with Chinese chips. Since then, Nvidia is up 83% and is 15% above its previous December peak level. The lesson for investors is to be very skeptical of investment noise; it’s more often than not simply speculative and frankly, wrong. These swings in share price for a multi-trillion-dollar company in dollar terms are simply enormous amounts of money.

Our overall thesis for the short term is cautiously optimistic for the local and global stock markets. The bond market we believe will continue to remain range bond and should produce yield as expected.

For further information on these issues, please click the following link to the quarterly webinar in English we held on July 7th:  https://youtu.be/8TYiyN0eN5Q

We wish all our clients and readers a pleasant and peaceful summer vacation. Hoping and praying for good news and the return of all the hostages and soldiers.

The aforementioned information is not a substitute for personal Investment marketing, which takes into account the particular circumstances and special needs of each person. The views expressed in this Review should be considered as market comment for the short-term for information purposes only. As such the views herein may be subject to frequent change, are indicative only and no reliance should be placed thereon. This Review does not constitute legal, tax or accounting advice, or any investment recommendation, or any offer to buy or sell financial instruments of any kind, and does not take into account the investment objectives or needs of specific investors. Although this Review has been produced with all reasonable care, based on sources believed to be reliable, reflecting opinions at the time of its writing and subject to change at any time without prior notice, neither Pioneer Wealth Management nor any other entity or segment within the Pioneer International Group makes any representations or warranties as to the accuracy or completeness hereof and accepts no liability for any loss or damage which may arise from its use. The writer and the company are unaware of any conflict of interest at the time of publishing the above commentary.