Brazil’s market wakes up from a bet that did not pay
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On October 5, the day after the first round, Brazil’s investors were euphoric. Flávio Bolsonaro had finished ahead of Lula, and the Ibovespa jumped 7.70% in a single session to close at 206,911.89 points. The “election trade” had begun: buy Brazil, sell the dollar, bet on a fiscal turnaround. Three weeks later, that trade collapsed.
The week in numbers
Monday, Oct. 26. After Lula’s reelection, the Ibovespa fell 13.88%, its largest drop since 2020, and the exchange triggered its circuit breaker. The index closed at 176,608.23 points. The dollar had its biggest daily gain since 1999, closing at R$5.40. Futures interest rates climbed by more than 250 basis points.
Tuesday, Oct. 27. There was a brief truce. Domestic assets corrected after the previous day’s stress, and the dollar and futures rates retreated. Stocks did not join in: the Ibovespa slipped another 0.51% to 175,710.05.
Wednesday to Friday. The relief faded. By Thursday, the index had lost about 17.5% since the close before the election. On Friday it ended the week at 167,922 points after five straight sessions of losses. That is the biggest weekly drop since March 2020, with the Ibovespa down 18.12% and listed companies losing R$963 billion in market value. Small caps were hit hardest, falling 32.79%, the worst week in that index’s history.
The currency and bond markets told the same story. The Ptax dollar reference rate rose 7.61% on the week, the biggest weekly rise since the Greek crisis of 2011, and the dollar was near R$5.44 by Friday. Key futures rates rose 164 and 259 basis points over the week. One contract maturing in November 2027 went from 12.9% a year to 14.3%.
For historical context, the weekly loss places this episode among the four worst weeks of the century, alongside 2008, the Covid pandemic and September 11.
What investors are hoping for
The hope is concentrated in one question: who will run the Finance Ministry? Investors are waiting to learn who will lead the major ministries and how fiscal policy will work in the new government. Minister Dario Durigan said he told Lula that a signal to the market is needed. Friday brought a flicker of optimism, then disappointment. Traders briefly priced in Piauí Governor Rafael Fonteles for the job, but that expectation lost strength during the day.
Some analysts also argue the selloff overshoots reality. A strategist at Criteria says part of Monday’s fall may reflect a rush to unwind positions rather than an equally severe deterioration in fundamentals. Another observation is that the Ibovespa has returned to levels seen before the strongest run-up of the election trade. In other words, much of the loss is the unwinding of an optimism that may never have been justified.
What they fear
The debt trajectory. One economist warns that the risk of public debt reaching 100% of GDP is worrying investors, and that it could mean more inflation, higher rates and a stalled economy.
A slower interest-rate descent. Central bank operations are trying to calm the rates market amid expectations that the Selic will fall more slowly if fiscal policy turns more permissive. For a country that had a 15% benchmark rate last year, this matters a great deal.
A weaker real. BTG had projected the Ibovespa near 170,000 in the weeks after the election and a 10% to 15% depreciation of the real. The stock index has already fallen past that level.
A waiting game that could turn sour. One local analyst puts it plainly: if the market dislikes the government’s next steps, the dollar should rise and rates should keep climbing. Another sees continued volatility and a structurally higher dollar.
The backdrop: big, but sluggish
Brazil remains Latin America’s largest economy, but a slowing one. GDP grew 2.3% in 2025, the weakest in five years, after 3.4% in 2024, weighed down by a 15% Selic rate. Growth was led by agriculture, with record corn and soybean harvests, and by oil and gas, while industry and investment stayed weak. Forecasters expect further deceleration in 2026. Note that 2.3% was Brazil’s slowest pace in five years, not the slowest in the region: Mexico, the second-largest economy, was forecast to grow well below that.
What to watch
The market’s verdict is not final. Whoever Lula names to Finance, and how credible his fiscal signals are, will decide whether this week was an overreaction or the start of a longer repricing. Until then, Brazilian assets are likely to trade on headlines.
This is not investment advice. Figures come from press reports published through Oct. 31, 2026.
