Lula wins new term in Brazil as markets watch debt and spending path
Key Facts
Luiz Inácio Lula da Silva was re-elected president of Brazil after receiving 51.8% of the vote, with 100% counted, the electoral court announced, according to the Associated Press. Lula led his rival, Flávio Bolsonaro, by about 4.4 million votes. The result puts fiscal policy at the forefront of investors’ focus after markets moved in the weeks leading up to the vote on expectations of a rightward political shift. Reuters said investors are bracing to reassess their bets on a change of government. The president-elect needs to slow debt growth while maintaining social programs and investment.
Brazilian stocks closed on Friday about 7% above their levels before the first round, while the real rose about 5% against the dollar over the same period, according to Reuters. The moves came after Flávio Bolsonaro led the first round three weeks earlier, bolstering investor expectations at the time of a political shift. Reuters describes these gains as bets made ahead of the result, with investors now moving to reassess them after Lula’s victory. These figures do not indicate an actual decline in stocks following the result announcement. Attention is focused on how the political shift will affect borrowing costs and investor confidence.
The fiscal questions concern the government’s ability to contain debt while funding its social and investment commitments. Reuters reported that public debt exceeds 82% of gross domestic product, while Lula’s team aims to achieve a primary surplus, before interest payments, of about 1.3% of GDP by 2030. That surplus could cover part of the interest bill and limit the need for new borrowing, the report said. But reaching that goal requires a clear fiscal path as the president-elect faces the challenge of slowing debt growth. A UBS official said investors want “a clear and credible commitment to fiscal discipline.”
Investors are also watching for the government’s first signals on the direction of fiscal policy, particularly the identity of the next finance minister and details of the 2027 budget and spending cap. Reuters quoted one investor as saying: “We want to see what the 2027 budget and spending cap look like.” That puts upcoming decisions under an immediate test of how consistent they are with the stated surplus target. The report also said the rally that followed the first round could largely reverse until the fiscal plan becomes clear. The market’s reading of the political result will therefore depend on the government’s pledges and signals on the budget and fiscal discipline.
In the United States, a FactSet report dated October 23 showed that 24% of S&P 500 companies had reported third-quarter results, and 83% of reporting companies had beaten earnings-per-share estimates. Blended earnings growth was 29.5% year over year, according to the report. However, reported aggregate earnings beat estimates by only about 2.1%, below the five-year average of 7.5% and the 10-year average of 8.0%. The comparison shows that most reporting companies beat estimates, but the overall size of the beat was below its historical averages. FactSet estimated that 179 index companies would report results during the week beginning October 26, with fourth-quarter earnings growth expected at 29.2%.
Results from major technology companies are emerging as a test of whether spending on artificial intelligence and data centers can generate returns. Reuters reported that Alphabet and Microsoft were scheduled to report on Wednesday, and Amazon on Thursday, with investors focused on capital spending guidance and returns from massive investments. Quarterly results from Intel and SanDisk could also affect AI-related trading. Reuters estimated capital spending by cloud computing giants at about $800 billion during 2026, saying the spending supports companies involved in building AI infrastructure, while its sustainability and financing costs are raising investor concerns. Disappointment with results from Meta and Lam Research was followed by a slight loss for the Nasdaq on Friday, after its biggest daily drop since June in the previous session.
Corporate results coincide with the Federal Open Market Committee meeting on October 27 and 28, with the Federal Reserve chair set to hold a news conference on October 28. These events come after the S&P 500 rose about 11% from the start of 2026 through October 23, according to Reuters. In the latest trading data cited, the index closed at 7,696.15 points on October 26, compared with a close of 7,623.68 points on October 23. The week thus brings together corporate results and spending guidance with the reading of the U.S. central bank meeting. In Brazil, the next budget, spending cap and choice of finance minister will remain among the signals investors are watching to assess the fiscal path.