Brazil's Bovespa Falls More Than 15%, Its Biggest Drop Since 1998, and Real Slides as Much as 12% After Lula Win

Since Lula's runoff win on Sunday, Oct. 25, the story has moved from the ballot box to the trading screens. Brazilian markets took some of their worst losses on record on Monday, Oct. 26.

The numbers

The Bovespa stock index fell more than 15% in Monday trading, its largest daily percentage drop since 1998. Quartz put the decline at nearly 17%. B3, the exchange operator, halted trading for 30 minutes after the index dropped 10% and triggered its circuit breaker. B3 had earlier widened the daily trading limits on index, dollar and interest-rate futures.

The real fell as much as 12% against the dollar, touching 5.60 per dollar, its weakest level since December 2025. It later recovered to roughly 5.42 to 5.43, still down about 8%.

The damage spread across the market:

• Petrobras gave up more than a tenth of its value in São Paulo.
• XP shares were cut in half.
• Nu Holdings fell 21% in New York.
• MercadoLibre fell 10% in New York.
• Raw sugar slid 5.6% as the currency collapsed.

Sovereign debt took a hit too. Brazil's five-year credit default swaps jumped to 151.67 basis points from 120.21 at Friday's close, according to S&P Global Market Intelligence. The yield on a dollar bond due in 2030 rose to 7.032% from 6.796%. The 2054 maturity yielded 7.45%.

The Treasury canceled its inflation-linked and fixed-rate auctions set for Oct. 27 and Oct. 29. Its auction of Treasury Financial Bills on Oct. 27 is still scheduled to go ahead.

What traders say drove it

The selloff reverses the rally that followed the Oct. 4 first round, when Flávio Bolsonaro finished first. The Bovespa closed Friday almost 7% above its pre-first-round level, and the real was nearly 5% stronger.

"Lula's victory triggered a sharp market selloff as investors reassessed the fiscal outlook under his fourth term," Mauricio Monge, senior Latin America economist at Oxford Economics, said in a report. His challenge, Monge wrote, "will be to convince markets that he can deliver a credible, sustainable fiscal adjustment while prioritising real wage growth and employment."

Chris Turner, ING's global head of markets, said "there was a strong consensus that it was going the way of Bolsonaro which was seen as positive for local assets."

Rachel Ziemba of the Center for a New American Security said traders were unwinding bets on a Bolsonaro victory and tighter fiscal policy. She added that Bolsonaro's objections amplified the pressure, but that "the scale of the victory suggests that the result will stand."

The case for Lula's record

Markets are pricing fiscal risk, not the broader record. Unemployment stood at 5.3%, near a historic low, and the IMF projects Brazil will become the world's eighth-largest economy in 2027. Poverty and food insecurity have fallen during Lula's third term, and Amazon deforestation is at its lowest level since records began in 1988.

Lula's team has said it is targeting a budget surplus of close to 1.3% of GDP by 2030. Investors are skeptical. Persistent primary deficits and rising public debt are the concerns driving the repricing.

Bolsonaro's challenge and Lula's speech

Bolsonaro has not conceded. At a Brasília press conference on Sunday he said "there's a lot that needs to be cleared up before Brazil simply accepts this foul play." His camp objects to the two-hour extension of voting in the northeast, a Lula stronghold. Bolsonaro said a Supreme Court justice, "for the first time in history, former lawyer for Lula, signed a decree at the request of a former partner of his and changed the rules of the game in the middle of the game."

The Superior Electoral Court has confirmed the outcome, with Lula at 51.8% to Bolsonaro's 48.2%, a margin of nearly 4.4 million votes. No court has annulled the result. The Bolsonaro camp has said it will seek annulment on the claim that voters were prevented from casting ballots. No verified evidence of that has been presented in these reports.

In his victory speech, Lula said he owed his career to the voters and added: "I was chosen by God. I always found that I had God's finger on my head." He also rejected President Donald Trump's push to restore the Monroe Doctrine in Latin America, saying Brazil "does not accept being anyone's backyard."

What comes next

Lula now faces what Trading Economics describes as his toughest political landscape since 2003, with a polarized electorate and the most right-wing Congress in Brazil's democratic era.

The next market signal is the finance minister. "For investors, first and foremost would be who would lead the Ministry of Finance," Goldman Sachs analysts Alberto Ramos and Panteleymon Semka said. Lula has not announced a pick. The Treasury Financial Bills auction on Oct. 27 will show whether demand for Brazilian debt holds up.