Brazilian Stocks, Real Fall Sharply After Surprise Election Outcome — Update

By Fabiana Negrin Ochoa and Renae Dyer

Brazilian stocks and the real sold off Monday after President Luiz Inacio Lula da Silva secured a surprise victory in the country's presidential election runoff over the weekend.

Left-wing Lula won a fourth term in office, defeating right-wing contender Flavio Bolsonaro on Sunday. In response, the dollar jumped more than 12% to reach a 10-month high of 5.6055 real shortly after the market opened, LSEG data showed.

Brazil's main stock market index, Ibovespa, dropped 17% to a two-month low of 169,516 points, after a circuit breaker delay triggered at a 10% decline. A gauge of Brazilian stocks represented by the iShares MSCI Brazil ETF was on track for its biggest one-day fall on record, falling 25% in early trade.

The election also hit stocks in the U.S. and Europe with significant exposure to Brazil. In New York, shares in fintech Nu Holdings fell 21%, while e-commerce group MercadoLibre fell 10%.

"Markets had largely expected a Bolsonaro victory, so part of the reaction reflects investors rapidly reversing their positions rather than a sudden deterioration in Brazil's economy," etoro market strategist Lale Akoner said in a note.

"We expect volatility to continue, particularly as concerns over government spending could keep borrowing costs high."

A Bolsonaro win had been viewed as the more market-friendly outcome due to promises of fiscal consolidation, privatization, pro-business reforms and expectations of closer alignment with the U.S.

Instead of the expectation of fiscal consolidation under Bolsonaro, traders will likely take the view that Brazil will muddle through for the next four years, Macquarie Group global foreign exchange and rates strategist, Thierry Wizman, said.

Much like France, it will be market discipline rather than pre-set policy direction that will ensure Brazil doesn't indefinitely veer off course toward a sovereign default or toward a hyper-inflationary future, he said.

Brazilian equities had rallied sharply after the first electoral round gave a clear lead to Bolsonaro, before giving back modest gains as polls tightened during the runoff campaign, Goldman Sachs analysts said in note Friday.

Prediction markets had continued to favor Bolsonaro heading into the final vote.

Following Monday's moves in asset prices, where they head after will likely depend on policy statements, Goldman Sachs economists said in the wake of the election results.

A key point to watch will be cabinet posts: "For investors, first and foremost would be who would lead the Ministry of Finance," Goldman Sachs's Alberto Ramos and Panteleymon Semka said.

Focus will also be on fiscal consolidation strategies.

Neither political camp gave very detailed proposals on that front, and the market will ultimately require policy execution rather than electoral signaling, said Thomas Haugaard, portfolio manager at Janus Henderson Investors.

"A thorough, transparent accounting of the fiscal cost of campaign measures/promises-and of the revisions and adjustments required for the 2027 budget-is also essential," Goldman Sachs said. "Fiscal sustainability remains the primary pricing anchor for Brazilian sovereign risk."

In Goldman's view, major structural reforms seem unlikely under a fourth Lula term. Goldman Sachs anticipates modest measures to contain primary spending growth, and increases to an already high tax burden.

"The administration would likely retain its strong belief that the public sector and state-owned enterprises should remain central engines of growth and investment," the analysts said.

-Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com and Renae Dyer at renae.dyer@wsj.com

(END) Dow Jones Newswires

October 26, 2026 10:56 ET (14:56 GMT)