Variable-income portfolio managers consulted by Broadcast point out that fiscal misalignment and a lack of definitive spending cuts have trapped Brazil's central bank at a Selic rate of 13.75% a year, crushing consumer, construction, and small-cap companies on the B3. While the Ibovespa sustains a year-to-date gain driven by commodities and major banks, sectors tied to the domestic economy are racking up steep losses.
Why are cyclical stocks falling on the B3 in 2026?
The direct answer lies in the time value of money. Variable-income fund managers explain that the absence of a credible fiscal plan with mandatory spending curbs prevents long-term interest rates from falling and forces the Monetary Policy Committee (Copom) to park the benchmark rate at restrictive levels. With the early end of the monetary easing cycle at the November meeting, assets dependent on residential credit, household consumption, and productive investment have lost their growth engine.
The contrast becomes clear when comparing the trajectory of the broad index with specific sectors. Year-to-date in 2026, the Ibovespa is up 6.88%, trading around 172,457 points. However, the sector indexes most sensitive to interest rates are moving in the opposite direction: the Consumer Index (ICON) is down 12.3%, the Real Estate Index (IMOB) is off 13.1%, and the Small Cap Index (SMLL) has accumulated a 14.1% loss over the same period.
Slowing credit growth and high rates of corporate and household delinquency explain why investors have fled these companies. When the Selic rate remains frozen at 13.75% a year, companies with debt tied to the CDI pay heavier interest every month, which consumes available cash and drastically reduces net income reported on their balance sheets.
How a 13.75% Selic rate and the political environment are squeezing corporate earnings
The mechanism penalizing the domestic stock market operates on two simultaneous fronts: rising financial expenses for companies and more expensive financing options for retail consumers. In an interview with Broadcast, Levante Inside Corp's chief analyst, Eduardo Rahal, noted that the benchmark interest rate at its current level acts as a direct squeeze on operations. According to Rahal, for the market to begin pricing in sustainable monetary easing again, the government must definitively signal its fiscal stance—which remains the primary source of anxiety for allocators.
This distrust intensified after developments within the ruling party's leadership. The National Directorate of the Workers' Party (PT) approved a resolution supporting the fiscal adjustment bill, but leveled harsh criticism at the central bank, classifying the maintenance of the Selic at 13.75% as a conservative obstacle to economic growth. Behind closed doors, however, lawmakers from the governing coalition expressed fears of a recession next year, recalling past fiscal crises.
While the political debate tries to shift responsibility to the monetary authority, the financial market is calculating the risk premium. As we evaluated in our coverage of how the fiscal adjustment estimated at R$ 80 billion was received by XP with just R$ 38.3 billion in permanent effect viewed as credible, analysts are skeptical of accounting that relies on extraordinary revenue gains rather than structural spending cuts.
Leveraged companies spend a significant slice of EBITDA just to service bank interest.
Financing for automobiles, real estate, and durable goods loses momentum with high installments.
Analytic firms are cutting estimated earnings for 2027, driving down the fair value of stocks.
Without mandatory cuts in rigid budget items, the market demands higher returns to hold public debt securities. This rise in long-term interest rates is immediately reflected in the discount rate applied to the valuation models of growth companies and small caps, reducing the present value of their future cash flows.
Why is the Ibovespa holding up while consumer stocks plunge?
The apparent contradiction between an Ibovespa near its peak and a domestic consumer portfolio in steep decline is due to the composition of the index itself. The Ibovespa is heavily weighted toward large commodity exporters (such as oil and mining companies) and major financial institutions. These sectors benefit from dollar-denominated revenue or, in the case of major banks, the ability to maintain loan portfolio profitability even in higher-interest-rate environments.
By contrast, investors focused on retail consumption, homebuilders targeting middle-income buyers, shopping malls, and technology companies feel the direct impact of stagnant domestic activity. The passage of legislative measures, such as the core text of the fiscal adjustment package approved by the Senate, was not enough to dispel skepticism about the long-term trajectory of public debt.
Additionally, the attractiveness of fixed income acts as a major liquidity drain for the stock market. With government bonds offering high returns and daily liquidity, the flow of retail investors and multi-market funds is shifting massively toward post-fixed and inflation-linked paper, hollowing out trading volumes for small caps on the B3.
What changes for your portfolio and how should you adjust your positions?
For the retail investor, the current environment requires distinguishing between structurally broken companies and discounted stocks that have strong balance sheets to weather the high-interest-rate winter. Broad, blind allocation in the index no longer works: buying passive small-cap funds exposes a portfolio to highly leveraged theses that may require emergency capital injections (dilutive follow-ons) to service debt.
Avoid buying retail or homebuilding stocks simply because "they have fallen a lot." Prioritize companies with a net debt-to-EBITDA ratio below 1.5x and strong free cash flow generation. In fixed income, take advantage of high rates to keep your emergency fund and defensive allocation in CDI-linked paper or short-term government bonds.
At times when interest rates remain high for an extended period, the minimum required return for a portfolio increases. Assessing whether Tesouro Direto at high rates makes sense in 2026 helps establish a benchmark: any domestic corporate stock must deliver a potential appreciation substantially higher than credit-risk-free fixed income to justify remaining in a portfolio.
What to monitor in the coming months before increasing exposure?
A reversal of this trend for cyclical stocks depends on concrete fiscal and monetary policy triggers. Investors should monitor the government's execution of spending containment measures and the trajectory of inflation projections in the Focus Report.
Detailed spending cuts — Check whether Congress will approve effective caps on mandatory spending or merely revenue-raising measures.
Copom meeting communication — Watch whether the central bank will open the door in its minutes to discussing a resumption of Selic rate cuts or signal a prolonged hold at 13.75%.
Delinquency and credit extension data — Track whether bank lending volumes begin to recover or if the credit squeeze continues to pressure consumer-sector companies.
The Investor's Verdict
The current environment calls for patience and selectivity. The discount in small-cap, real estate, and consumer stocks is real, but the upside catalyst remains constrained by fiscal uncertainty. Maintain your allocation in fixed income yielding high interest and limit stock market investments to dividend-paying companies or those with very low debt until a definitive fiscal signal emerges.
