October 26, 2026 | TickerRoast Markets Analysis
Brazilian markets had spent three weeks betting on one outcome. On Sunday night they got the other. Luiz Inácio Lula da Silva came from behind to win the presidential runoff, and the reaction in offshore trading was brutal: the main U.S.-listed Brazil fund fell more than 18% overnight. Having followed this election closely, I think the move says as much about how crowded the bet had become as about Lula himself.
An Upset After a First-Round Defeat
Lula won about 51.8% of the vote against Senator Flávio Bolsonaro’s 48.2%, with nearly all ballots counted, according to Business Today, citing Brazil’s electoral court. The result reversed the first round on October 4, when Bolsonaro finished first with roughly 47% to Lula’s 45%, according to NPR. Bolsonaro has not conceded and has called for the result to be annulled, alleging a last-minute change to voting hours, Business Today reported, which adds a layer of political uncertainty.
How Far the Market Had Leaned the Other Way
The chart shows the setup going into the vote. Based on Yahoo Finance data, EWZ closed Friday at $42.59, up about 15% in one month and about 32% since January, close to its 52-week high of $43.90. Brazilian markets rallied after Bolsonaro’s first-round lead as investors priced in a higher chance of his victory, according to investingLive. When a market positions that heavily for one result, the reversal is usually violent.
And it was. EWZ fell more than 18% in overnight trading, according to Stocktwits, while Business Today reported a decline of as much as 16% in early trading, the steepest intraday drop since 2020. A Tokyo-listed fund tracking the Bovespa fell nearly 15% in Asian trade, investingLive said. A CME derivatives contract pointed to the real weakening toward 5.60 per dollar, a depreciation of more than 10% from Friday’s level, although Business Today noted that this did not reflect an actual market price. Overnight moves in thin trading can overshoot, so the regular session will give a clearer picture.
| Indicator | Reported move or estimate | Source |
|---|---|---|
| iShares MSCI Brazil ETF (EWZ), overnight | More than -18% | Stocktwits |
| Tokyo-listed Bovespa ETF | Nearly -15% | investingLive |
| Brazilian real (CME derivatives indication) | Toward 5.60 per dollar, more than 10% weaker | Business Today |
| Ibovespa, first hour (Monte Bravo projection) | Possible -11% | Business Today |
| Goldman Sachs extreme scenario | Equities -15%, USD/BRL +10%, long yields +200 bps | investingLive |
The Fiscal Question Behind the Sell-Off
The concern is not new, and it is mostly about public finances. Brazil’s gross general government debt reached 82.5% of GDP in July, its highest level since April 2021, according to Central Bank data reported by The Rio Times, while the nominal deficit over 12 months approached 10% of GDP, driven largely by interest costs. During the campaign, Bolsonaro pledged to slash the deficit, while Lula pledged to continue broad social spending, NPR reported. Markets worry that Lula may be reluctant to pursue the fiscal tightening investors see as necessary to bring interest rates down, Business Today noted.
Before the vote, a Citigroup survey of 73 investors found that most expected the real to weaken by at least 5% and swap rates to rise by more than a percentage point in the event of a Lula win, according to Business Today. In other words, the direction of the move was anticipated; its size reflects how little probability the market had left for this outcome.
Why the Damage Could Be Contained
There is a counterweight that I think deserves more attention. The right made significant gains in Congress in the October 4 elections, particularly in the Senate, according to NPR. A legislature more conservative than the president would limit his room to expand spending and could push for fiscal discipline. Goldman Sachs also described its harshest scenario, with equities down about 15% and the dollar up 10% against the real, as an extreme case rather than its central expectation, investingLive reported.
The daily chart does not yet show the overnight drop, since it reflects closes through Friday. Before the vote, EWZ traded above its 20-day, 50-day and 200-day moving averages, around $41.20, $38.46 and $37.19, with a 14-day RSI near 62. A move of the size seen overnight would take the fund well below all three. How Brazilian assets settle during today’s regular session, the shape of Lula’s economic team and any progress on the legal challenge to the result are what I will be watching over the coming days.
Sources
- Brazil markets face sell-off as Lula stuns investors with election win — Business Today
- Brazil ETF tumbles nearly 15% in Tokyo after Lula’s comeback runoff win — investingLive
- Brazil’s presidential race heads to Lula-Bolsonaro runoff as right gains ground (NPR) — NPR, via WUNC
- Brazil public debt reaches 82.5% of GDP — The Rio Times
- Nasdaq Futures Slip Amid Tech Selloff While S&P 500, Dow Edge Higher Ahead Of Crucial Earnings Week — Stocktwits, via TradingView
Market data: Yahoo Finance, close of 2026-10-23. Charts generated by TickerRoast from this data.
Disclaimer: This article is for informational and educational purposes only. It provides general financial and business analysis and does not constitute investment advice, a personal recommendation, a recommendation to buy, sell or hold any security, or an offer to transact in any financial instrument. Information is based on publicly available sources as of October 26, 2026 and market data as of the 2026-10-23 close (Yahoo Finance). Past performance is not a reliable indicator of future results; forecasts are uncertain and actual results may differ materially. Investing in shares involves risk, including the loss of capital. The publisher does not guarantee the accuracy or completeness of the information and accepts no responsibility for investment decisions made on the basis of this article. Readers should consult official company disclosures, conduct their own research and, where appropriate, seek advice from a licensed financial adviser. Any relevant financial interests held by the author or publisher in the securities mentioned are disclosed where applicable. This article was prepared with the assistance of AI tools and is based on the sources listed above.
Anonymous reader poll, just for fun. Not investment advice.
Read next
Get the daily market briefing
The stories that move markets, in your inbox every trading day at 9 a.m. ET. Free, unsubscribe anytime.
