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Brazil runoff election: markets brace for selloff as Lula reelection defies rightward rally
Brazilian stocks and the currency had rallied hard on expectations of a Flávio Bolsonaro win in the Brazil runoff election, and fund managers now expect a sharp selloff after Lula's reelection.
By Haut Monde Post
• October 26, 2026
• 2 Min Read
A rally built on a Bolsonaro win
Brazilian assets had spent the three weeks since the first round pricing in a rightwing shift. Flávio Bolsonaro unexpectedly finished first in the election's opening round three weeks before the runoff, and investors traded as though he would complete the job.
By Friday's close, the position was unmistakable:
- •Stocks closed on Friday almost 7% above their level going into the first round
- •The real was nearly 5% stronger against the US dollar after the first round
Both moves rested on the assumption of a Bolsonaro victory in the Brazil runoff election. Lula's reelection instead leaves assets priced for a rightwing government facing a sharp reset.
What strategists expect on Monday
Fund managers pointed to an immediate repricing once trading resumes. Luis Felipe Vital, head of macro strategy at Warren Investimentos, said the reaction would come fast and hard.
We expect a sharp market reaction on Monday, with aggressive repricing, a selloff in assets
Alejo Czerwonko, chief investment officer for emerging markets at UBS Global Wealth Management, framed the reversal around fiscal policy, saying investors would unwind the post-first-round gains until Lula sets out how he intends to manage the budget.
We expect the rally that followed the first round to be largely priced out
The fiscal task ahead
The constraint behind those forecasts is the balance Lula's incoming term must strike. Over the next four years he must slow the growth of Brazil's debt while protecting social programs and investment, a combination the market has yet to see costed in detail.
Until that plan emerges, the rally built on a Bolsonaro win stands to be unwound rather than extended.
The Brazilian electoral court has recognised the result, with president Kassio Nunes Marques saying Lula won with more than 64 million votes and will be the 40th president for the term beginning 5 January 2027. Markets now await Monday's session - and a clear fiscal plan.
