Ibovespa Rises 3.5% in July: What Explains the Turnaround

Four Months of Decline Are Behind Us

The Ibovespa closed July at 177,999 points, accumulating a 3.47% appreciation for the month. This increase interrupted a streak of four consecutive months of losses, a cycle that had been deteriorating investor sentiment since March.

At the same time, the spot dollar fell 1.79% against the real during the period, closing the last session at R$ 5.07. The combination of a weaker currency and a rising stock market typically reflects a scenario of incoming foreign capital, and that is exactly what happened.

The month also brought a significant monetary fact: the future interest rate curve began to fully price in a new cut of 0.25 percentage points in the Selic rate at the Copom meeting scheduled for August 5. If confirmed, the basic rate would drop from 14.25% to 14% per year, representing another step in the monetary easing initiated by the Central Bank.

Weaker Inflation Opened Space for Bank Revisions

The main catalyst for bets on interest rate cuts was the slowdown in price indicators. The IPCA for June recorded a 4.64% increase over 12 months, still above the 3% target pursued by the Central Bank, but on a path of relief. Meanwhile, the IPCA-15 for July, considered the preliminary inflation figure, fell from 4.80% to 4.52% on the same basis.

These numbers triggered a wave of revisions among major financial institutions. Bank of America changed its projection and now expects a reduction of 25 basis points in the next Copom decision, treating it as the last easing of the cycle. Itaú BBA adopted a more constructive reading: it now projects the Selic at 13.75% by the end of 2026, down from the previous estimate of 14%, anticipating a more intense slowdown in economic activity and lower inflationary pressure.

For those following the Brazilian financial market, this change in tone from banks often precedes broader movements in asset prices. When large institutions revise interest rate projections downward, the effect tends to spread across the curve, benefiting stocks, real estate funds, and fixed-rate bonds.

U.S. Tariffs Brought Noise, but Did Not Halt the Rally

Not everything was optimism in July. The U.S. government announced two additional tariffs on Brazilian products that, combined, reach 37.5%. According to data compiled by Global Trade Alert, Brazil jumped to the position of the second country with the highest average effective tariff among American trading partners, with a rate of 17.7%. Only China, with 27.2%, faces a heavier barrier.

In practice, the impact could affect export chains of commodities and manufactured goods. In response, the federal government announced the release of R$ 18.5 billion in financing lines for affected companies. The measure aims to cushion short-term effects but does not resolve the structural issue of the ongoing trade war.

Even in the face of this noise, the market showed resilience. The prevailing view among analysts is that stock prices had already factored in adverse scenarios after four months of correction, creating a favorable asymmetry for medium- and long-term positions.

Fed Maintained Rates, but Internal Divergence Caught Attention

On the external front, the Federal Reserve kept interest rates in the range of 3.50% to 3.75% per year for the fifth consecutive time. Up to that point, it was within expectations. What surprised was the dissent: three of the nine directors voted for a 0.25 percentage point increase, something that had not happened since 2016.

Fed President Kevin Warsh characterized the divergence as healthy, stating that he sought a "good family fight" within the committee. Despite the conciliatory tone, the lack of clear signaling regarding the next steps has kept uncertainty in global markets. Employment and inflation data for July in the United States will be crucial in calibrating expectations for the September meeting.

There is also the risk of a new government shutdown in September. President Donald Trump has been pressuring Congress to approve stalled projects in both legislative houses, and the possibility of budget paralysis adds another layer of volatility to the international environment.

What Stood Out and What Disappointed in the Ibovespa

Among the 79 stocks in the theoretical portfolio of the index, CSN Mineração (CMIN3) recorded the best monthly performance. The appreciation was driven by a share buyback program and buying flow, as well as expectations surrounding the potential sale of CSN's cement division. Market estimates value the cement business at over R$ 10 billion, a significant amount considering the approximately R$ 22 billion in debt maturities concentrated between 2026 and 2028.

On the opposite end, Direcional Engenharia (DIRR3) had the worst performance of the month, pressured by the operational preview of the second quarter, whose numbers divided opinions among analysts. The earnings season for Q2 2026 gained traction in the last trading sessions of July and will continue to move the market in August.

What to Expect in August for the Brazilian Stock Market

August begins with two high-impact events: the Copom decision on the 5th, where the market is already pricing in a 0.25 point cut, and the continuation of corporate earnings for the second quarter. The combination of falling interest rates, favorable exchange rates, and discounted valuations may sustain appetite for Brazilian equities.

On the other hand, the impact of American tariffs has not yet appeared in the companies' numbers. The second-quarter earnings will be the first real test of the resilience of Brazilian exporters in the face of the new trade barrier. If the results come in below expectations, recent optimism may quickly lose momentum.

For investors with a longer horizon, the scenario suggests that the worst of the correction may be behind. However, confusing a technical recovery with a consolidated trend would be premature. The next 30 days will bring enough data to separate the conjunctural rally from a structural change in direction.