Shocking the market! Lula pulled off an unexpected comeback in Brazil’s presidential runoff, setting a record with his fourth term.

Brazil’s incumbent president, Luiz Inácio Lula da Silva, completed a dramatic turnaround in the presidential runoff election, defeating his opponent Flávio Bolsonaro by 51% to 49% and securing an unprecedented fourth term. This outcome shattered a historical precedent dating back to Brazil’s return to democracy in 1989—no candidate had ever overcome a first-round deficit to win in the runoff. It also defied widespread expectations that the 80-year-old veteran’s political career was nearing its end. According to Brazil’s Superior Electoral Court (TSE), these results were based on 73% of votes tallied as of 8:48 p.m. Sunday. The polling firm Datafolha promptly projected Lula’s victory. Election Day itself was rife with surprises: allegations of voter suppression emerged, and voting hours were temporarily extended. Ultimately, massive turnout from Lula’s traditional stronghold in the Northeast helped him clinch victory in the final stretch. Earlier, right-wing senator and former President Jair Bolsonaro’s son, Flávio Bolsonaro, had led the first round—a historically decisive advantage, given that no candidate since 1989 had ever reversed a first-round deficit in the runoff. Lula’s path to victory thus appeared extremely narrow at that point. According to Bloomberg, Lula’s return signals policy continuity—but persistently high fiscal deficits, debt burdens, and interest rates remain unresolved core challenges. While he pledged fiscal consolidation, he offered no concrete roadmap. He also explicitly stated he would not sacrifice social programs to appease financial markets—a stance likely to sustain investor concerns about Brazil’s fiscal sustainability. Following the announcement of the election results, the Brazil-focused ETF traded in Japan plunged 13%. Markets had broadly bet on Flávio Bolsonaro, expecting him to pursue more rigorous fiscal discipline. By contrast, Lula’s governance has traditionally prioritized growth stimulation through consumption-driven policies—not tackling Brazil’s deep-rooted fiscal crisis. Creomar de Souza, founder and CEO of Dharma Political Risk and Strategy, remarked: ‘He may think he’s been handed a blank check—but he won re-election in an environment of institutional fragility.’ The narrow victory: Election Day ‘surprises’ and market shock Lula’s win stands as a textbook political reversal. After the first round concluded on October 4, Flávio Bolsonaro held the lead—and carried himself with the air of a certain victor, given the absence of any precedent for a first-round underdog winning the runoff since Brazil’s democratization. Lula, however, launched an aggressive counteroffensive. He rolled out a flurry of measures directly targeting household financial stress: raising benefits under the Bolsa Família program, banning online gambling, launching a large-scale consumer debt refinancing scheme covering private banks—and even distributing weight-loss injectables via the public health system. In the final 15 days before the runoff, he focused intensely on voters who had skipped the first round or remained undecided—and especially targeted Brazil’s densely populated Northeast region. It was precisely this region’s deep-rooted emotional loyalty to Lula that ultimately served as his anchor.

Lula wins his fourth term—but could the election result be annulled?

At campaign rallies, Lula himself declared, ‘I’m becoming the king of selfies,’ and acquired his first smartphone just before his 81st birthday—an initiative explicitly aimed at reaching young and low-engagement voters who had abstained in the first round. By contrast, Flávio Bolsonaro appeared overconfident. Two days before voting, he and Lula participated in their final televised debate. During that debate, Flávio Bolsonaro mocked Lula’s missing finger—calling him ‘nine-fingered’—though Lula lost that finger at age 17 while working as a metalworker. Lula immediately fired back, pointing out that Bolsonaro had never held a job, then pivoted the discussion back to labor rights and class. It’s worth noting that Flávio Bolsonaro’s father, former President Jair Bolsonaro, was sentenced to 27 years in prison for coup-related crimes—a stigma Flávio cannot shake. To many voters, this meant supporting a family branded with a coup conviction—hardly a credible platform for ‘defending democracy.’ Yet refusing to accept defeat is an even more entrenched Bolsonaro-family habit. Flávio Bolsonaro’s stated justification for contesting the result was that Supreme Court Justice Alexandre de Moraes extended voting hours by two hours on Election Day—thereby ‘violating equal rights.’ This sounds like seizing on a procedural loophole—but loopholes cut both ways: Bolsonaro’s own team had requested extended voting hours in 19 cities earlier that same afternoon, citing heavy rain and flooding that impeded voter access. In essence, he asked for the extension—and then, having lost because of it, claimed the extension itself was illegal. That logic holds no water before the Electoral Court. So—will the result be annulled? The likelihood is extremely low. Under Brazilian electoral law, overturning a nationwide result requires more than merely identifying procedural irregularities; challengers must present evidence proving those violations materially altered the outcome. With a margin of 4.4 million votes, how could a two-hour extension possibly change the result? The Chief Justice of the Superior Electoral Court has already stated unequivocally: the extension did not affect vote counting. Why, then, does Flávio Bolsonaro pursue this course? His aim is to keep the defeat in legal limbo—to preserve his family’s appeal to its core right-wing electorate. But what was the outcome when his father refused to acknowledge defeat in 2022? A 27-year prison sentence. Notably, besides Flávio Bolsonaro, the strongest reaction to Lula’s victory came from Brazil’s overseas markets. At 9:08 p.m., the TSE announced Lula’s win; by approximately 9:50 p.m., offshore markets saw sharp declines in both the Brazilian real futures and Brazil-focused equity funds. Reports indicate that the Chicago Mercantile Exchange’s real futures briefly weakened by about 10%, while the Brazil equity ETF listed in Tokyo fell roughly 11%–12%. U.S.-listed related funds dropped over 18% in after-hours trading. Crucially, these are prices for offshore futures, ETFs, and after-hours trades—not equivalent to intraday plunges in Brazil’s domestic stock market. Why are investors so nervous? Because they had heavily bet on Flávio Bolsonaro’s victory. Following the October 4 first-round results, Brazil’s stock market surged 7.7% and the real strengthened—markets anticipated Bolsonaro would advance stricter fiscal discipline and market-oriented reforms. Lula’s ultimate win instantly reversed that ‘election trade.’ Compounding concerns, Lula pledged to expand welfare spending—raising fears that higher expenditures will further strain public finances, weaken the real, keep interest rates elevated, and raise corporate borrowing costs.

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