By Mateo Bueno Sá
Brazil's main stock index, the Ibovespa, lost 18.12% in the week that ended Friday, October 30, its worst weekly performance since March 2020, when the Covid-19 pandemic shook markets worldwide. The index closed Friday down 0.75% at 167,921.80 points, its fifth consecutive session of losses. The slide began right after the reelection of President Luiz Inácio Lula da Silva, of the Workers' Party (PT), on Sunday, October 25.
Ibovespa plunges after Lula's reelection
According to the source material, investors reacted to the result with concern about the path of public finances and about how economic policy will be run in the coming years.
The worst moment came on Monday, October 26, the first trading day after the election. That day the Ibovespa dropped 13.88%, its biggest one-day fall since March 2020. The swing was so violent that it triggered the circuit breaker, a mechanism that temporarily halts trading when losses reach certain limits.
One of the worst weeks since the Real Plan
The 18.12% weekly drop ranks among the sharpest declines recorded since the Real Plan, the 1994 program that stabilized the Brazilian currency. In the period cited, it is behind only March 2020, when the index lost 18.88% in seven days at the height of the pandemic panic. In other words, the market reacted to the election with an intensity comparable only to the start of a global health crisis.
External factors also weighed
The domestic picture was not the only factor. Outside influences increased caution: interest-rate decisions in the United States and Europe, geopolitical tensions, corporate earnings and doubts about the pace of the global economy.
Investment consultant Karen Focchesatto explains that in times of greater uncertainty, investors tend to seek assets considered safer and reduce their exposure to equities, a flight from the stock market.
Dollar rises and the central bank meeting is next
In the currency market, the U.S. dollar rose 1.09% on Friday and closed at R$ 5.4460 (Brazilian reais).
Attention now turns to the next meeting of the Monetary Policy Committee (Copom), the Central Bank panel that sets Brazil's benchmark interest rate, the Selic. It is scheduled for November 3 and 4. The decision will be watched amid expectations on inflation, economic activity and fiscal policy, factors that shape investors' bets on the stock market's next moves.
Why it matters
The Ibovespa is the benchmark index of the São Paulo stock exchange and the main gauge of how investors view Brazil. Lula, who has led the country since 2023, won another term in a vote that markets answered with the biggest one-day fall since the pandemic. Because the Selic and the exchange rate affect the cost of credit, prices and the ability of companies to raise funds, the market's verdict on fiscal policy has consequences well beyond Wall Street-style trading floors.
VDD Analysis
When the market reacts with a drop like this right after an election, the message is distrust about the direction of public finances. The price is paid by the investor, by the company that wants to raise capital and by Brazilians who depend on stable interest rates and exchange rates. The government has an obligation to respond with clear signals of fiscal responsibility and spending restraint, rather than betting on more spending and more taxes. Without that, confidence will not return, and November's Copom meeting will be only the first chapter of this reckoning.
With information from Bacci Destaques.
