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The party that rewarded its own squeeze — January 2025

Episode

The extreme

The Brazilian stock market spent months pinned to the bottom of the scale. When relief finally arrived, it came with a detail that stains the celebration: the market wasn't cheering an exit from the squeeze — it was cheering whoever profits from it. The enthusiasm came back in full, but the structure underneath stayed crouched on the defensive, and the money picked as its hero the sector that best monetizes high rates: the banks. It was an optimism that lived in the relative pricing of assets, not in the real economy. In numbers: the market's mood jumped from 41.6 to 66.5 and the appetite for risk from 14.8 to 69.0 — both in extreme optimism —, with the Financials/IBOV ratio advancing from z −1.08 to +0.84, the largest move across the entire grid. The domestic regime, however, barely budged: it stayed defensive, at 29.5, with the Selic nailed at 13.25% a year.

What happened next

The contradiction didn't resolve through a rise in the structure — it resolved through a fall in the mood. In April, appetite still climbed to 91.0, but commodities were bleeding and the structure already marked risk-off (32.62). In July, the euphoria collapsed for good: mood plunged from 92.3 to 39.0, and the financial leadership that January had crowned turned into an open wound — Financials/IBOV nailed at z −2.34. The hero of six months earlier was now the most punished sector on the grid.

What did not happen

The turn of the cycle never came. The regime never left the defensive, and the score of 29.5 that called for a cool head was right the whole time. The leadership of the banks did not last — the party rewarded a protagonist passing through, not one with a reign. And IFIX/IBOV, which had already sunk to z −1.20 while the rest celebrated, did not recover: high real rates kept hurting where the index's optimism couldn't reach.

The honest verdict

There is an irony in the record. Six months later, January 2025 matured with a return of +5.6% — a verdict of being right, but over only five comparable episodes. The cautious reading of the regime was confirmed in the return; the leader it crowned was not. The engine read the regime with clarity. The protagonist, it had no way to foresee.

Continue reading: The two clocks of December 2024 · The Selic at 15% and the euphoria that cedes · The financials leave the table →

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