Home › Research › Brazil's B3 after Lula's upset
Archived research note · Published Oct 28, 2026. Prices and figures reflect that date and are not updated. See all research.
Brazil's B3 after Lula's upset: the election shock and what comes next
Brazil's stock market is repricing a political surprise, not a recession. President Lula's runoff win on Oct 25 erased the entire October "Bolsonaro trade" in one session: the Ibovespa closed down 13.88% on Oct 26 at 176,608, its worst day since March 2020, after B3 tripped a 30-minute circuit breaker.
Intraday figures: numbers for Wednesday, Oct 28 are from this morning's trading, before the B3 close. The close may differ materially.
Bottom line
- No relief rally yet. The index slipped 0.51% on Oct 27 and was down about 2% intraday on Oct 28, near 171,500, roughly 18% below the Oct 9 record of 209,067.
- The real and rates did the heavy lifting. The dollar spiked to about R$5.60 on Monday and has eased to about R$5.32–5.35. Ten-year yields hit 15.6% before Treasury buybacks pulled them back near 15%.
- The single biggest catalyst is a name: Lula's next finance minister and fiscal plan. The central bank's Nov 4 rate decision is second.
- Positioning matters. Foreigners were still net buyers of Brazilian equities for October through Oct 26 (+R$13.3 billion). Unwinding that money is the overhang.
The setup: a crowded bet on a right turn
The crash was mostly an unwind of a one-way October bet. Flávio Bolsonaro unexpectedly finished first in the Oct 4 first round, and the Ibovespa jumped 7.7% the next day, then set a record close of 209,067 on Oct 9.
Going into the runoff, prediction markets still gave Flávio 77–78%, and a Citi survey found 80% of investors expected the index to fall more than 5% on a Lula win. The market was positioned for one outcome and got the other. Lula won 51.79% to 48.21%.
The shock: Monday, Oct 26
B3 halted equities for 30 minutes at the open after the Ibovespa fell more than 10% in the opening auction, its first circuit breaker since the COVID crash.
| Measure | Oct 26 move |
|---|---|
| Ibovespa intraday low | 169,516 (about −17.3%) |
| Ibovespa close | 176,608 (−13.88%) |
| Ibovespa futures, worst point | nearly −20% |
| USD/BRL | about R$4.99 → R$5.60 (real −12%) |
| EWZ (US premarket) | about −25% |
| 5-year CDS | 120 → 144 bp |
| 10-year local yield, peak | 15.6% |
Political noise added to the move. Flávio Bolsonaro first sought to annul the result, then backed off Monday night after President Trump signaled he would not intervene; his Liberal Party formally recognized the result. Reports differ on whether he has formally conceded himself.
Days two and three: no bounce yet
The market has not found a floor. On Tuesday, Oct 27, the Ibovespa traded as high as 178,526 in a relief attempt, then faded to close down 0.51% at 175,710 on R$72.2 billion of volume. Magazine Luiza rebounded 8.5%.
On Wednesday morning, Oct 28, selling resumed. The index fell about 2.4% to an intraday low near 171,545, with big banks leading losses and Santander Brasil (SANB11) down about 5% after earnings. The US Federal Reserve decides on rates in the afternoon, adding a second source of volatility.
One bright spot: the real is recovering faster than stocks, at about R$5.32–5.35 versus Monday's R$5.60 peak.
Rates, the real and the Treasury's response
The bond market is where the stress is being managed most actively. Brazil's Treasury bought back about R$7.1 billion of fixed-rate NTN-F bonds on Monday and cancelled its Oct 27 inflation-linked and Oct 29 fixed-rate auctions. By Tuesday it had repurchased about US$5.9 billion across three operations in two days.
It worked, partly. The 10-year yield eased to about 14.97% from the 15.6% peak, still a decade high.
The central bank's rate committee (Copom) meets Nov 3–4 with the Selic at 13.75% after five quarter-point cuts this year. Before the vote, markets priced a November cut at about 90%. Polymarket now puts a hold near 75%, and some futures pricing has drifted toward a hike. The last Focus survey of economists predates the election, so official forecasts are stale.
Flows: foreigners hedged more than they sold
Foreign investors pulled only about R$2.85 billion from B3 equities on Oct 26, so local investors did much of Monday's selling. Foreign selling had already started the week before the vote, about R$4 billion in two sessions.
The bigger foreign move was in currency hedges: a record US$6.84 billion net purchase of dollars through B3 derivatives on Oct 26 alone.
Sectors and stocks most exposed
State-linked companies and domestic banks took the worst of it, because policy risk lands on them first.
| Company | Ticker | Election-week move | Why it is exposed |
|---|---|---|---|
| Petrobras | PETR4 / PBR | about −10% in São Paulo; PBR −15% to −21% in New York on Oct 26 | Government control; fuel-price, capex and dividend policy risk |
| Itaú, Bradesco, Nu | ITUB / BBD / NU | −23% to −29% in US premarket Oct 26 | Higher rates, credit quality, possible tax changes |
| Santander Brasil | SANB11 / BSBR | about −5% Oct 28 after earnings | Q3 profit R$2.9B, down 28% y/y; ROE 11.9% vs 17.5% a year ago |
| MercadoLibre | MELI | about −11% to −15% Oct 26 | Brazil consumer and fintech exposure |
Petrobras CEO Magda Chambriard called the drop speculative and unrelated to fundamentals. Bulls note PBR trades under 4x forward earnings; skeptics point to dividends falling from 94% to under 40% of free cash flow since 2022.
Exporters with dollar revenue (Vale, steel, pulp) are better cushioned by the weaker real. Vale reports Thursday.
Catalysts ahead
| Date | Event | Why it matters |
|---|---|---|
| Oct 28 (afternoon) | US Fed rate decision | Global risk appetite and the dollar |
| Oct 29 | Vale Q3 earnings | Largest exporter; test of the commodity cushion |
| Coming weeks | Lula names his finance minister | The key signal on fiscal discipline, per RBC BlueBay and UBS |
| Nov 4 (after close) | Copom Selic decision | Hold vs. hike sets the tone for banks and the yield curve |
| Nov 10 | Copom minutes | How the central bank reads the election shock |
| Dec 8–9 | Final Copom meeting of 2026 | Whether rate cuts can resume |
Lula's team has targeted a primary surplus of about 1.3% of GDP by 2030, with public debt above 82% of GDP. Any credible plan that pulls that target forward is the main upside surprise available.
Bull case, bear case, what to watch
The index is now roughly back to where it traded in late September, but with a weaker currency and higher rates. Which way it breaks depends on fiscal signals more than on earnings.
Bull case
- The selloff was positioning, not fundamentals: the index entered the vote priced for a Flávio win, and Petrobras trades at a low single-digit earnings multiple.
- The Ibovespa is still about 19% higher than a year ago.
- An orthodox finance-minister pick and early spending restraint could pull rates down quickly.
- The real has already retraced a good part of Monday's drop.
Bear case
- Precedent cuts against a quick fix: in January 2023, markets sold off in Lula's first days after a budget-busting fuel-tax extension undercut his finance minister.
- A rate hike, or even a long hold, pressures banks already showing weaker credit (Santander Brasil's provisions up 9.4% y/y).
- Most of October's R$13.3 billion foreign inflow can still leave.
- Pre-election Wall Street targets are stale. Morgan Stanley's bear case was 130,000 against a 215,000 base, set when a Flávio win was favored.
What to watch
- The finance minister's name and first fiscal statement
- USD/BRL holding below R$5.40
- The 10-year yield back under 14.5% without new Treasury buybacks
- Daily B3 foreign-flow data turning positive
- The Copom statement on Nov 4
Data caveats
- Oct 28 figures are intraday from the morning of publication; the close may differ materially.
- Monday's drop is reported as 13.88% by most outlets, 13.3% by one and 13.7% by another. This note uses 13.88% (close of 176,608 vs. 205,083).
- Treasury buyback volumes for Oct 27 rest on Brazilian press reports; the Treasury's own notice was not confirmed.
- Whether Flávio Bolsonaro has personally conceded is reported differently across outlets.
Not investment advice. Sources: Rio Times (circuit breaker), Rio Times (runoff tracker), Rio Times (first-round rally), Rio Times (Treasury buyback), Rio Times (US$5.9B buybacks), Rio Times (rate forecasts), Rio Times (Santander Brasil Q3), InfoMoney (Oct 28 live), InfoMoney (foreign flows), InfoMoney (dollar hedges), Brasil 247, Trading Economics, TradingView (10-year yield), Reuters via Yahoo, Reuters via AOL, ARC Research, Investing.com (US-listed shares), Investing.com (Petrobras CEO), Seeking Alpha, TIKR via Yahoo, NPR, Washington Post, EBC Financial, Al Jazeera (2023). Published Oct 28, 2026, with intraday figures for that day.