São Paulo — December 20, 2025. Brazil’s stock market is heading into the year-end slowdown with a familiar mix of ingredients: a powerful 2025 rally still visible in the rear-view mirror, a short-term volatility hangover from politics, and a 2026 narrative increasingly dominated by one question—when does the Selic finally start coming down? [1]
On Friday (Dec. 19), the Ibovespa—the benchmark index for the São Paulo Stock Exchange, B3—closed higher for a second consecutive session, ending at 158,473.02 points after touching 159,551.94 intraday. But the broader tone was not “all-clear”: the index still finished the week down about 1.4%, while December remained slightly negative overall. Even so, the big headline for investors is the 2025 scoreboard—up roughly 32% year-to-date—a reminder that Brazil’s equity story has been far from sleepy despite restrictive interest rates. [2]
That whiplash—strong annual performance, short-term jitters—is the essence of B3 right now. And as of December 20, the news flow shaping Brazil’s equity outlook clusters into five themes: the newly approved 2026 budget, monetary policy timing, election risk, commodities and global risk appetite, and B3’s own strategy as an exchange operator.
Market snapshot: Ibovespa steadies, banks lead, and liquidity turns seasonal
Friday’s tone was best described as “repair work.” After sharp mid-week declines and ongoing political headlines, Brazilian equities leaned on a classic Ibovespa support beam: big banks.
Reuters reporting highlighted Itaú Unibanco and Bradesco among the day’s key gain contributors, with the session also featuring options expiration—a recurring ingredient for choppy intraday moves on B3. The trading day’s range (low near 157,906; high near 159,552) captured how sensitive positioning remains into the last stretch of the year. Trading volume was elevated, with Reuters citing R$32.3 billion changing hands. [3]
As the calendar flips toward late December, one more factor matters: liquidity. Holiday-adjacent trading often amplifies price swings because fewer participants are active, and that can make the Ibovespa look more dramatic than underlying fundamentals justify—especially when politics and rates are already in the mix. [4]
Brazil’s 2026 budget: a fiscal “yes,” with investors reading the fine print
The most market-relevant political development of the week landed on Friday: Brazil’s Congress approved the 2026 budget bill, projecting a primary surplus of 34.5 billion reais—roughly 0.25% of GDP—which would be the first primary surplus of President Luiz Inácio Lula da Silva’s current term. [5]
But markets don’t just ask “surplus or deficit?” They ask how durable is the math? The Reuters summary included several details investors are likely to debate into early 2026:
- The budget earmarks 79.8 billion reais for investment (up from the initial proposal). [6]
- It allocates 31 billion reais for housing programs. [7]
- The contingency reserve was reduced versus the original proposal. [8]
- Lawmakers included about 20 billion reais in additional revenue after approving measures that reduce tax incentives and raise certain taxes (including on fintechs and betting firms, among others). [9]
In plain English: Brazil cleared an important procedural hurdle—getting a budget approved before year-end—but the debate now shifts to whether revenue assumptions hold up and whether fiscal rules will be tested by election-year pressures. Bloomberg separately flagged investor concern that even with a headline target, exceptions and off-budget spending can strain the spirit of fiscal frameworks. [10]
This is why the budget matters for the São Paulo Stock Exchange beyond politics: fiscal credibility directly affects long-term rates, and long-term rates are the gravity field for equity valuation in Brazil.
Selic at 15%: the rate-cut countdown begins, but the central bank won’t commit
Brazil’s Selic rate remains at 15%, near a two-decade high, and the central bank has been stubbornly consistent: no promises, no hints, no shortcuts. [11]
On December 10, the central bank held rates again and kept a hawkish tone, frustrating investors hoping for clear signaling about imminent easing. Reuters reporting emphasized that policymakers reiterated the need to keep rates restrictive for a “very prolonged period,” even as growth slows and inflation moderates. [12]
Then came a subtle but important nuance. On December 18, Reuters reported that central bank chief Gabriel Galípolo maintained a data-dependent stance and avoided pre-committing to any specific path ahead of the next key decision in January—while President Lula publicly suggested he could “sense” cuts approaching. That combination—political hope versus technocratic caution—is exactly the kind of tension markets price into Brazil. [13]
So what is the market betting on? The near-consensus has drifted toward cuts beginning in March 2026, even if some forecasters still argue January remains possible. [14]
For B3 and the Ibovespa, this matters mechanically:
- Lower expected rates can pull domestic savings toward equities, improving flows and liquidity.
- Lower discount rates can support higher valuation multiples, especially for rate-sensitive sectors.
- But if cuts are delayed due to fiscal anxiety or inflation expectations, the equity tailwind weakens.
This rate narrative is the spine of most 2026 equity forecasts coming out of Brazilian brokerages and banks right now. [15]
Election politics: why markets are watching the right wing as closely as Lula
Brazilian assets don’t just price “Lula vs. opposition.” They price who the opposition is, how unified it is, and whether a market-friendly coalition looks plausible.
Reuters reporting this week underscored the market impact of former President Jair Bolsonaro’s endorsement of his son, Senator Flávio Bolsonaro, and how that move has not unified Brazil’s right ahead of the 2026 election. The report noted that the endorsement surprised allies and investors, and highlighted ongoing fragmentation in the right-wing camp. [16]
That political uncertainty feeds directly into:
- Risk premia (investors demand a higher return to hold equities),
- the currency (which influences inflation expectations and rate outlook), and
- the long end of the yield curve (critical for equity valuation).
It’s not an accident that market commentary around the Ibovespa this week repeatedly linked equity moves to election headlines and rate expectations. [17]
Commodities and global risk appetite: the “Brazil beta” still runs through Vale and Petrobras
Even when domestic politics steals the spotlight, Brazil’s equity index remains structurally tethered to global cycles via heavyweight names—especially Vale and Petrobras.
Friday’s session again reflected that reality, with major commodity-linked constituents helping stabilize the index as global cues improved. [18]
Beyond daily price action, Petrobras continues to generate strategic headlines that matter for index-level narrative. This month, Reuters reported Petrobras’ move into the solar segment via a stake in Lightsource bp subsidiaries in Brazil—part of a broader diversification push in its 2026–2030 plan. For global investors who use Brazil exposure as a blend of commodities and domestic growth, Petrobras’ direction influences how “Brazil risk” gets framed. [19]
Meanwhile, Reuters’ broader emerging-markets outlook piece published Friday pointed to growing investor optimism for 2026 in emerging assets—partly because developed-market politics and policy uncertainty have made some investors treat EM as relatively attractive. Brazil won’t be spared its own volatility, but that global context can still shape flows into B3-listed assets. [20]
Inside B3: the exchange operator bets on diversification—and returns cash to shareholders
When people say “São Paulo Stock Exchange,” they often mean the market itself. But the operator, B3 S.A., has its own storyline—and in December it delivered two shareholder-relevant updates.
First, Reuters reported that B3’s board approved a share buyback program of up to 230 million shares. [21]
Second, B3 provided 2026 spending guidance: total disbursements of 3.17–3.61 billion reais, including adjusted expenses of 2.4–2.6 billion reais and capex of 260–350 million reais. It also signaled a net leverage ratio up to 2.2x EBITDA. [22]
Those numbers matter because exchange operators are, in a sense, “financial plumbing businesses”—their profitability depends on volumes, product mix, technology, and regulation. And B3 has been actively positioning itself as more than an equities trading venue.
A recent Investing.com review of B3’s Q3 2025 materials highlighted that while some core trading lines can be cyclical, other businesses have been growing faster:
- Fixed income and credit revenues up 21% year-over-year,
- Data analytics solutions up 18%,
- Technology and platforms up 13%,
alongside a strong cash position and ongoing buybacks over multiple years. [23]
In other words: B3 is trying to look less like a pure “equities volume” story and more like a diversified market-infrastructure and data company—which is exactly what many global exchange groups have been doing for the last decade.
2026 forecasts: bullish targets are back, but the “if” is doing heavy lifting
Forecast season is in full swing—and Brazil’s equity forecasts for 2026 range from confidently bullish to cautiously skeptical, often depending on how each forecaster models rates and politics.
On the bullish side:
- XP raised its fair-value projection for the Ibovespa to 185,000 points by end-2026 (from 170,000), citing falling long-term real rates and room for multiple expansion. [24]
- Bank and brokerage commentary widely treats the start of a Selic-cut cycle as a potential catalyst for domestic flows into equities. [25]
- A Money Times summary of a Bank of America survey reported that a majority of Latin America fund managers surveyed saw the Ibovespa above 170,000 by December 2026, with a meaningful minority expecting even higher outcomes. [26]
On the caution side:
- Reuters reported Goldman Sachs warning that fiscal discipline after the 2026 election is crucial, noting Brazil’s debt dynamics and the risk of volatility if fiscal policy disappoints. [27]
- The central bank continues to emphasize inflation expectations and resists committing to cuts, meaning the “lower rates = higher stocks” path is not guaranteed. [28]
- Political fragmentation and election uncertainty can easily widen risk premia, especially in the first half of 2026 when campaigning begins to dominate headlines. [29]
A realistic synthesis for Google Discover readers: the base case for 2026 is constructive but fragile. Brazil’s equity market has proven it can rally even with high rates—but sustaining a “new leg up” likely requires some combination of credible fiscal execution, visible disinflation, and clearer timing on Selic cuts.
What to watch next on the São Paulo Stock Exchange
As Brazil heads into the thin-liquidity holiday stretch, the next catalysts are less about daily macro prints and more about narrative confirmation:
- Follow-through on the 2026 budget and revenue measures
Investors will watch whether the revenue assumptions embedded in the budget remain politically and economically plausible. [30] - Signals ahead of the next Copom meeting
Galípolo’s “no pre-commitment” stance suggests volatility can return quickly if inflation expectations shift or if politics pressures the monetary framework. [31] - Election headlines that change perceived probabilities
Markets don’t need the election to happen to reprice. They only need a credible story about who might win—and what policy that implies. [32] - Commodities and China-facing demand signals
Because the Ibovespa’s heavyweight constituents remain closely tied to global cycles, international risk sentiment and commodity pricing can still overpower domestic narratives on any given week. [33]
Bottom line: B3 enters 2026 with momentum, but also a three-way tug-of-war
As of December 20, 2025, the São Paulo Stock Exchange is being pulled by three forces at once:
- A strong 2025 rally that keeps valuation optimism alive, [34]
- A rate-cut narrative that could unlock a new cycle—if inflation and fiscal math cooperate, [35]
- Election-year uncertainty that can reprice Brazil risk quickly, [36]
That’s not a contradiction. That’s Brazil—where macro, politics, and commodities take turns driving the plot, and where B3 sits in the center as both the national trading venue and a company betting on the next evolution of market infrastructure. [37]
References
1. br.tradingview.com, 2. br.tradingview.com, 3. br.tradingview.com, 4. forbes.com.br, 5. www.tradingview.com, 6. www.tradingview.com, 7. www.tradingview.com, 8. www.tradingview.com, 9. www.tradingview.com, 10. news.bloombergtax.com, 11. www.reuters.com, 12. www.reuters.com, 13. www.reuters.com, 14. www.reuters.com, 15. riconnect.rico.com.vc, 16. www.reuters.com, 17. diariodocomercio.com.br, 18. monitordomercado.com.br, 19. www.reuters.com, 20. www.reuters.com, 21. www.tradingview.com, 22. www.tradingview.com, 23. au.investing.com, 24. www.infomoney.com.br, 25. riconnect.rico.com.vc, 26. www.moneytimes.com.br, 27. www.reuters.com, 28. www.reuters.com, 29. www.reuters.com, 30. www.tradingview.com, 31. www.reuters.com, 32. www.reuters.com, 33. monitordomercado.com.br, 34. br.tradingview.com, 35. www.reuters.com, 36. www.reuters.com, 37. www.tradingview.com
