Brazil elections drive market volatility and fiscal uncertainty

The 2026 Brazilian presidential elections are driving increased market risk and volatility. According to Paulo Gama, head of political analysis at XP, investors must look beyond election results to assess future fiscal policy. Key factors for market stability include the formulation of economic proposals, presidential support, and governability within Congress, particularly regarding mandatory spending and the debt-to-GDP ratio.

Data from Nomad indicates that the Ibovespa has experienced a significant disconnect compared to historical election cycles. In the six months preceding the first round, the index fell 11.5%, whereas the average decline between 2006 and 2022 was only 2.2%. This increased risk is compounded by high interest rates and inflation in the United States, geopolitical tensions, and competition for capital.

Market turbulence is also reflected in the S&P/B3 Ibovespa VIX, which reached a record high of 33.21 points. This indicator suggests a high expectation of intense price fluctuations in the coming month. Historically, volatility in the Brazilian market tends to rise between the first and second rounds of voting.