Brazilian stocks fell 13.9% on October 26, 2026, in their sharpest daily decline since the start of the COVID-19 pandemic, following President Luiz Inácio Lula da Silva’s surprise re-election the previous day.

Brazilian stocks and currency retreat

The Brazilian real fell nearly 8% against the U.S. dollar on Monday, its largest drop since 1999. The yield on Brazil’s 10-year government bond rose 2.46 percentage points to its highest level in more than a decade.

The moves erased a rally in Brazilian assets that followed Flávio Bolsonaro’s first-round election victory in early October. Bolsonaro had been seen as the more market-friendly and fiscally disciplined candidate.

Brazil’s Treasury canceled two bond auctions planned for the week amid concerns over demand and rising yields.

Spending promises meet fiscal constraints

Lula faces slowing growth and high inflation and interest rates, as well as a heavily right-wing Congress opposed to many of his policies. His promises include protecting existing benefits, raising the minimum wage faster than inflation, expanding housing and education support, cutting taxes on food essentials and reducing the working week to 40 hours without pay cuts.

Rafael Ch, a senior analyst at Signum Global Advisors, said the result would be viewed as an endorsement of higher social spending. He also said bond markets were uneasy about Brazil’s growing debt-to-GDP ratio and could demand a higher premium if spending rises significantly.

Ch said insufficiently funded fiscal expansion could lead the central bank to cut interest rates less than it otherwise would. He expects Lula to initially reassure markets before seeking greater fiscal flexibility, but those steps remain an analyst forecast rather than announced policy.

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