209,600 points. That was the all-time intraday high hit by the Ibovespa, Brazil's main stock index, on Monday morning (Oct. 5), in the first trading session after Senator Flávio Bolsonaro (PL) finished the presidential first round ahead of President Luiz Inácio Lula da Silva (PT), by 47.03% to 45.16% of valid votes, according to BBC News Brasil. The index, which had never crossed 200,000 points, traded up more than 8% during the day.
For ordinary Brazilians, the most concrete news came from the exchange rate. The dollar fell 4.12% to R$ 5.0010, and touched R$ 4.9530 at the day's low, according to g1. On Friday it cost about R$ 5.22 to buy one US dollar; a stronger real tends to make imported goods and inputs cheaper, from electronics to the wheat in bread.
Market interest rate forecasts also tumbled. The rate projected for January 2031 fell from about 14% to 12.85% per year, according to Bruno Perri, chief economist and co-founder of Forum Investimentos, quoted by g1. Lower future rates open the door to cheaper credit for companies and families, from mortgages to working capital for small businesses.
Understand: why stocks rise when future rates fall
The logic is simple. When fixed income (investments that pay a pre-set rate, such as Treasury bonds) becomes less attractive, money migrates to stocks. At the same time, the rate used to calculate the present value of companies' future profits falls, which raises the value assigned to each share.
Banks led the rally, market jargon for a period of fast, sharp gains. Exchange operator B3 rose 22.63%, BTG Pactual 22.52%, Bradesco 13.57%, Banco do Brasil 11% and Itaú 10.37%, according to g1. Lower rates also ease the debts of companies and consumers, which reduces default risk.
A bet on fiscal adjustment
Behind the move is the expectation that an eventual Flávio Bolsonaro government would carry out a fiscal adjustment, meaning measures to balance government revenues and spending. Aides to the senator promise spending cuts equivalent to 1.5% of Gross Domestic Product (GDP, the sum of everything the country produces), roughly R$ 190 billion, according to the BBC. For comparison, that equals more than 260 million basic food baskets priced at R$ 700.
The newly elected Congress reinforces that reading. According to a survey by the Diap legislative advisory body cited by the BBC, the right-wing bloc in the lower house grew from 248 to 260 seats, and in the Senate from 32 to 48. "This electoral scenario profoundly changes market expectations," Perri said.
For Étore Sanchez, chief economist at Ativa Investimentos, three factors explain the euphoria: Flávio's fiscalist agenda, the more orthodox Congress and the possibility that this is Lula's last election, leaving the left without a successor. Gustavo Sung, chief economist at Suno Research, strikes a cautious note: "The central point is that short-term optimism needs to turn into concrete delivery."
There are important caveats. Sergio Vale, chief economist at MB Associados, notes that nothing guarantees the adjustment, which will depend on the pick for Finance Minister, and sees a risk that Flávio could spend political energy trying to free his father, former President Jair Bolsonaro, from prison. "That is a big risk and if it goes that way we will lose precious time for the adjustments," he said. With three weeks of campaigning left and only 1.87 percentage points between the candidates, analysts expect volatility until the runoff vote.