Election makes impression on markets

The US mid-terms are a week away, but a different election had a notable effect on a portion of global markets on Monday.

Left-wing incumbent Luiz Inácio Lula da Silva’s victory in Brazil’s presidential runoff election over the weekend did not initially appear to be embraced by Brazilian—and, more broadly, Latin American—markets on Monday morning. Brazil’s primary stock index, the Índice Bovespa, fell more than 17% before modestly paring its losses.

The result constituted a “surprise,” simply because right-wing challenger Flávio Bolsonaro won the initial round of balloting earlier in the month, and a first-round presidential-election winner hadn’t lost a runoff since the country’s modern democratic era began in the 1980s. Bolsonaro’s rejection of the result raised the prospect of possible (domestic) political turmoil, as well as apparent disappointment that the perceived pro-business candidate (Bolsonaro) would not, ultimately, take office.

The focus is now on the fiscal agenda of the elected President and his choice of Finance Minister, according to Morgan Stanley & Co. strategists, who believe the stakes are high since Brazil faces “rising debt, limited room for further revenue-led adjustment, a spending rule increasingly weakened by exemptions, and a primary balance well below debt-stabilizing levels.” They add that measures announced during the election cycle will likely add to fiscal pressures.¹

E-commerce and fintech stock MercadoLibre (MELI) was typical of many Latin American stocks on Monday. Shares tumbled 13.2% in early trading, before trimming the loss to single digits before midday:

Taking a step back, MELI’s monthly chart shows the stock has been mostly confined to a trading range this year after retreating from its 2025 all-time high above $2,600. In May, the correction reached roughly -43%:

The Morgan Stanley & Co. strategists describe a “challenging” outlook for Brazilian equities as policymakers potentially face an “increasingly challenging macroeconomic environment, characterized by a weaker currency, higher interest rates, and a slowing economy in growing need of a fiscal rebalancing that appears increasingly unlikely.”  

Although MELI isn’t a Brazilian company, Brazil—Latin America’s largest economy—accounts for the lion’s share of its business. It remains to be seen which impulse from Monday will prevail on a longer-term basis—the sharp, early sell-off, or the intraday reversal. Monday’s decline was a fairly unusual move for MELI, and the rebound was even rarer. Since 2007, MELI has fallen 10% or more intraday and closed at a 60-day (or longer) low only 33 other times, and it rebounded to close above the opening price and in the top half of the day’s range in only three instances.

Considering the price action a little more generally (focusing just on the down day’s closing price), we find MELI tended to bounce in the short term after closing down at least -7.5% but less than -12.5% while also closing at its lowest level in at least 60 days: The stock’s median return was +2% after five trading days (higher in 20 of 34 cases) and +2.5% after 10 trading days (higher in 18 of 34 cases).²

Today’s numbers include (all times ET): Durable Goods Orders (8:30 a.m.), S&P Case-Shiller Home Price Index (9 a.m.), FHFA House Price Index (9 a.m.), Consumer Confidence (10 a.m.), New Home Sales (10 a.m.), Fed meeting begins.

Today’s earnings include: Boeing (BA), Enphase (ENPH), Coca Cola (KO), Novartis (NVS), NXP Semiconductors (NXPI), PayPal (PYPL), United Parcel Service (UPS), Visa (V).

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¹ MorganStanley.com. Brazil Elections: Lula reelected, fiscal policy in focus. 10/26/26.
² Figures represent MercadoLibre (MELI) daily prices, 2007-2026. Supporting document available upon request.