Lula Wins Fourth Term, Sending Brazilian Markets Sharply Lower

Luiz Inácio Lula da Silva has won a fourth term as Brazil's president, coming back from a first-round loss to defeat Senator Flávio Bolsonaro in Sunday's runoff. The result caught financial markets off guard and set off a sell-off in Brazilian assets.

With nearly all ballots counted, the Superior Electoral Court reported that Lula received 51.8% of valid votes against 48.2% for Bolsonaro. It is the first time since Brazil returned to direct elections in 1989 that a candidate has won the runoff after finishing behind in the first round.

Markets reacted quickly. The iShares MSCI Brazil ETF was down 25% at 10:30 a.m. ET, and trading on Brazil's stock exchange was halted by an automatic circuit breaker. Among U.S.-listed Brazilian companies, Petrobras fell 16%, Itaú Unibanco dropped 20%, Ambev lost 10.3%, Embraer slid 5% and Vale declined 1.2%. The Brazilian real fell 10.5% against the dollar to its weakest level since December 2025, according to LSEG data.

The Brazilian Treasury canceled auctions of inflation-linked and fixed-rate government bonds that had been planned for Oct. 27 and Oct. 29. In a notice, it said it would "continue to monitor market conditions and act to ensure the proper functioning of the government bond market and other related assets." An auction of Treasury Financial Bills set for Oct. 27 will proceed.

Analysts pointed to fiscal worries. Citi said investors were concerned about "fiscal policy, state-owned enterprises, and the broader reform agenda" under Lula, and warned that banks could suffer if interest rates stay higher for longer. Chris Turner of ING noted that a budget deficit of 7-8% and net debt of 70% of GDP leave Brazil exposed in a global bond sell-off. Lula has pledged to extend the Bolsa Família welfare program and shorten the working week without cutting pay.

Alejo Czerwonko of the Atlantic Council said the administration will likely continue a "gradual approach" to stabilizing its debt, building on the current fiscal framework while protecting public investment and social spending. Goldman Sachs analysts expect "modest measures" to restrain spending growth, along with further increases in an already heavy tax burden, and consider major structural reforms unlikely.

Political uncertainty also hangs over the outcome. Reuters reported that Bolsonaro refused to concede overnight and said he would seek to have the result annulled. He also called a decision by a supreme court justice to extend voting by two hours "unacceptable." Turner said markets will watch how quickly Bolsonaro accepts the result or "allows the constitution to run its course."

The vote was marked by allegations of voter suppression. Lula's campaign reported suspended public transportation in some key areas. Justice Cristiano Zanin extended voting by two hours, and Bolsonaro's campaign had also sought an extension because heavy rains closed polling stations in the right-wing stronghold of the south.

The win by the 80-year-old leftist halts a rightward shift in Latin America that U.S. President Donald Trump has supported. Trump had called Bolsonaro's first-round lead "a very, very big victory." Daniela Portella Sampaio of the Royal United Services Institute said Washington would have preferred a Brazilian leader more closely aligned with U.S. foreign policy. Lula, who has publicly sparred with Trump, is due to govern from 2027 to 2030 with a Congress in which Bolsonaro's Liberal Party holds its largest bench in decades. Regional leaders largely congratulated him, including Peru's Keiko Fujimori and Uruguay's Yamandú Orsi.