Why Is the Ibovespa Falling for the Third Consecutive Day?
Three factors in sequence: Lula's reelection in the runoff caught the market by surprise, the government has yet to deliver a concrete fiscal response, and Santander released weaker-than-expected earnings. Over three sessions, the index fell from 205,082 points to the 170,000 level — a straight-line drop of 17%.
The broader answer — and the reason the sell-off did not stop on Monday — is that the market is still waiting for a fiscal anchor. Without one, every negative data point becomes an excuse for more selling. Monday (Oct. 26) was the election shock. Tuesday (Oct. 27) was when the market tested whether buyers were stepping in. Wednesday (Oct. 28) showed that, for now, they are not: out of the 87 stocks that make up the Ibovespa, only six advanced during the session — Prio, Hypera, RD Saúde, TIM, WEG, and Brava Energia.
Santander Dragged Down the Banks — and Banks Drive the Index
Even before Wednesday's opening bell, Santander Brasil released its third-quarter financial results: a net profit of R$ 2.885 billion in Q3 2026, down 28% compared to Q3 2025, coming in below the R$ 3.161 billion expected by the Bloomberg consensus. Return on average equity (ROAE) fell to 11.9% — its lowest level in three years — trailing the CDI interbank rate of 13.65%. In practice, the bank delivered less to shareholders than a conservative fixed-income investment. Provisions for bad loans reached R$ 7.4 billion, a 14.3% increase over Q3 2025, pressured by defaults among large agribusiness firms, corporations, and low- to middle-income retail borrowers.
Santander's unit (SANB11) dropped 4.87% on the session and is down 24% in 2026. Itaú BBA, BTG Pactual, and Safra all assessed the earnings report as weak, lacking sufficient signs of improvement in asset quality. The results weighed on the entire banking sector, even hitting stocks that have yet to report: Bradesco fell 6% in the same session. Large banks hold some of the heaviest weightings in the Ibovespa — when they drop together and by significant margins, the index has little room to recover. Retail stocks also bled out: VAMO3, MGLU3, and AZZA3 led the day's losses, penalized by the outlook for higher interest rates for longer and weaker consumer stimulus.
Two Days Without Answers — Fiscal Policy Remains the Main Sticking Point
Finance Minister Dario Durigan stated on Tuesday that the government is preparing measures to hit the center of its fiscal target — but provided no specific numbers or timeline. The National Treasury bought back government bonds to ease upward pressure on long-term interest rates. It was not enough: foreign investors pulled R$ 2.8 billion from the B3 on Monday, the first business day following the election results, and the outflow continued throughout the week.
"The market is still waiting for more concrete signaling on the fiscal front. That is what could calm or reverse part of this drop."Renato Widmer, CIO at Aurum Wealth Management, speaking to MoneyTimes (10/28/2026)
As reported by InfoMoney, backstage rumors are circulating that the government is studying a financial transactions tax (IOF) on investments in LCI and LCA agricultural and real estate credit bills — instruments that currently offer personal income tax exemptions. If confirmed, this would signal that the administration's strategy relies on boosting revenue rather than cutting spending — exactly what the market fears and what prevents long-term interest rates from falling. UBS stated that President Lula faces several credibility tests ahead, the first of which is a fiscal package featuring concrete figures.
What About the Fed? The U.S. Decision Isn't the Villain — But It Matters for the Dollar
The Federal Reserve met on Wednesday, and the market had priced in a 90% probability that interest rates would be held steady between 3.75% and 4.00%. While Brazilian markets melted down, U.S. indexes traded slightly higher — making it clear that this week's stress is domestic, not external. The dollar pulled back to R$ 5.34 on Wednesday, well below the peak of R$ 5.60 reached during Monday's shock. This pullback is, so far, the only positive note of the week.
A contagion channel exists, however: a more hawkish Fed would drive the dollar higher globally, narrow the interest rate differential between Brazil and the U.S., and put further upward pressure on the real. That is not Wednesday's baseline scenario, but it remains a risk that keeps the market closely watching the U.S. central bank's messaging — complicating any potential positive signals from the Lula administration on the fiscal front.
Equity investors are facing their third consecutive drop with no clear sign of a bottom. The consensus among analysts surveyed by specialized media this week is uniform: without a fiscal anchor, buying into a 17% discount is betting against the flow. Post-fixed income investments remain protected — high CDI rates and elevated risk premiums favor those parked in Tesouro Selic or CDI-linked bank certificates of deposit (CDBs). Real estate investment funds (FIIs) are being squeezed on two fronts at once: rising long-term interest rates depress unit prices, while a risk-off environment reduces market appetite for real estate risk assets. For those already positioned, fund managers recommend waiting for a concrete fiscal catalyst before making any moves — whether to add to positions or exit.
Government Fiscal Announcement — the only catalyst capable of quickly reversing sentiment. If the package includes spending cuts with concrete figures, the market reaction is typically immediate; if it relies entirely on new revenue (such as an IOF tax on LCIs and LCAs), the market tends to react negatively.
Dollar Above R$ 5.40 — a sign that foreign capital outflows are accelerating again. Wednesday's pullback to R$ 5.34 is the week's only positive data point; a new high would break that support level.
Itaú and Bradesco Earnings — the index's two largest banks are still scheduled to release their Q3 2026 results this week. If Santander's pattern — an ROAE below the CDI and rising provisions — repeats itself, the banking sector will drag the Ibovespa lower regardless of the broader macro environment.
