Tel Aviv Indices: The map that explains what is really happening in the market

The banking index ended one trading day in August 2026 with a rise of 2.45%, and the defense index plummeted during those same hours by about 4%. Anyone who looked only at the TA-35 saw a moderate fluctuation and missed the two big stories of that day: money that flowed into the banks, and a sharp realization in defense companies after a historic rally.

A stock index is a defined basket of stocks, whose aggregate change in price is translated into one number. Instead of tracking 125 stocks separately, the investor gets one thermometer for each group: large, small, banks, real estate, or technology. The Tel Aviv Stock Exchange calculates dozens of such indices, publishes their value every 15 seconds during trading, and sets transparent entry and exit rules for each of them.

How an index is calculated: free-float market cap and weight cap

The weight of a stock in an index is determined by its free-float market cap — the value of shares held by the public and available for trading, as opposed to the controlling interest. A company with a free-float value of 40 billion shekels will move the index four times more than a company with a free-float value of 10 billion, even when both rise by the same percentage.

A weight cap is the brake that prevents one stock from taking over the index: 7% for a stock in the TA-35, 5% in the TA-125 and only 2% in the TA-90. Without it, a giant company like Elbit Systems would concentrate a huge part of the defense index, and any portfolio following the index would become a bet on one company. Even with a 10% cap in the defense index, the two largest companies in it together reach a fifth of it.

Gross total return is the calculation method for stock indices in Tel Aviv, meaning the dividends distributed by the companies are counted within the index itself. The S&P 500 index is a price index, without dividends, so a direct comparison between the two graphs favors Tel Aviv by a few percent a year without any investor earning more. Anyone comparing performance between markets must ensure that both numbers are measured by the same method.

TA-35, TA-90, and TA-125: who enters where

The TA-35 concentrates the 35 companies with the highest market cap that meet the threshold conditions, the TA-90 the next 90, and the TA-125 combines both groups into the stock exchange's broad flagship index. The composition is updated twice a year, in February and August, and alongside it operates a fast track that introduces new giant companies into the indices shortly after their registration for trading.

Entering an index is worth big money, for a purely mechanical reason: tracking funds and ETFs that follow the index are obligated to buy every stock that enters it and sell every stock that leaves. When Palo Alto entered the TA-35, demand of about 800 million shekels was recorded, and on one index update day in 2025, the turnover at the closing auction reached 7.7 billion shekels. Index update days have become a trading event in their own right: stocks that enter enjoy automatic demand even before, as traders try to get ahead of the funds, and stocks that leave absorb supply. An investor who holds a stock that is approaching an entry or exit threshold must know this schedule, because the fluctuations around it are related to the flow of money and less to the company's business itself.

The sectoral indices: stories that run in parallel

The banking index — Leumi, Hapoalim, Mizrahi-Tefahot, Discount, and First International — is the barometer of the local economy: credit, interest, and profitability of the financial system. The insurance index is sensitive to the capital markets themselves, because a large part of insurance companies' profits comes from investments. The real estate index lives and dies by the interest rate environment, and the oil and gas index moves with energy prices and royalties from gas reservoirs.

The defense index, which was launched at the end of 2025 with 18 stocks, quickly became one of the most covered indices on the stock exchange: it concentrates Elbit, Next Vision, and the other companies that benefited from the global wave of orders, and it is sharply sensitive to every geopolitical headline. The technology index, on the other hand, moves with global demand and with the Nasdaq, and often behaves opposite to local indices.

This logic works the same way abroad. The day the banks rose 2.45% and the defense companies plummeted about 4% illustrates the value of this map: a look at two sectoral indices revealed within seconds that the market is spinning two narratives in parallel — a rotation from the sector that ran forward to the sector that remained behind. Such a reading saves hours of going over individual stocks.

SME60 and tracking funds

The TA SME60 concentrates the 60 stocks with the highest public holding value outside the TA-125 — the margins of the market. Liquidity there is thinner, fluctuations are sharper, and analyst coverage is limited, so it is precisely there that the movement of one institutional body is capable of moving a stock by tens of percent. For a patient investor, this is a playground of opportunities, and for those accustomed to the liquidity of the TA-35, this is an area that requires double caution.

A tracking fund and an ETF are the practical way to be exposed to an entire index in one purchase: both hold the index stocks according to their weight, the difference between them concerns mainly the way of trading, and the management fees on the large Tel Aviv indices are particularly low.

The above does not constitute investment advice or a substitute for advice that takes into account the data of each person.