Luiz Inácio Lula da Silva was reelected president of Brazil on Sunday, October 26, 2026, in a runoff election that defied prediction market expectations [1]. Lula defeated Flávio Bolsonaro, the right-wing candidate and son of former president Jair Bolsonaro, by a margin of 51.8% to 48.2%, according to Brazil's Superior Electoral Court [1]. The result represented a significant upset, as prediction markets had heavily favored Bolsonaro in the days leading up to the election, with both Kalshi and Polymarket giving Bolsonaro an over 80% chance of victory following first-round voting on October 4 [1]. As late as Sunday afternoon, Lula remained a significant underdog on prediction markets, with his odds at just 21% on Kalshi even after 8:30 p.m. ET on Sunday [1].
The prediction market failure contrasted sharply with traditional political polling, which had shown a tight race in the days preceding the contest [1]. Kalshi co-founder and CEO Tarek Mansour defended the prediction market methodology, noting that a 5% probability outcome "should happen 1 in 20 times" and that such occurrences do not indicate broken markets [1]. However, this represents another instance of prediction market inaccuracy; in August, Kalshi had reflected a 95% likelihood of Wisconsin Democratic socialist Francesca Hong winning a gubernatorial primary, yet she lost by less than 1 percentage point [1].
Lula's victory triggered a sharp market selloff in Brazil-linked equities on Monday [1]. The iShares MSCI Brazil ETF (EWZ) declined 22%, while major Brazilian financial and industrial stocks experienced steeper losses: Itau Unibanco (U.S.-traded shares) fell 20%, Banco Bradesco dropped nearly 30%, Ambev declined more than 15%, and Petrobras declined more than 15% [1]. Brazil's Supreme Court had extended voting for two hours late Sunday, which Bolsonaro argued hurt his chances of winning; Reuters reported that Bolsonaro is expected to challenge the election outcome [1].
CONCLUSION
Lula's unexpected victory in Brazil's presidential runoff election triggered a significant market correction, with Brazil-linked equities experiencing substantial declines as investors reassessed the political and economic implications of his return to power. The result exposed limitations in prediction market methodologies, which had assigned Bolsonaro an over 80% probability of victory despite traditional polling indicating a competitive race. Market participants appear to have priced in a Bolsonaro victory, resulting in sharp selloffs across Brazilian financial institutions and commodity-linked equities following Lula's win.