• Bonds: US Treasurys rallied, pushing yields lower as investors bet that a divided Washington could curb government spending and borrowing.
• Stocks: Wall Street surged following Democrats’ midterm sweep, with the Dow gaining more than 1,500 points as investors welcomed political gridlock preventing major policy changes, while tech megacap stocks also rebounded.
• Commodities: Oil prices tumbled amid easing fears of a US attack on Iran, while gold prices rose as the dollar weakened following the election.

M&A

Morning Brew Inc.

We all know CVS for one thing: receipts long enough to double as winter scarves. Turns out, its corporate structure was getting pretty long as well.

After spending decades assembling a healthcare empire that includes pharmacies, insurance, doctors, and prescription drug middlemen, CVS Health announced that it’s splitting into two publicly traded companies—separating its retail pharmacies from its insurance group and pharmacy benefit manager, Caremark.

The news came alongside a solid earnings report. CVS posted $108.4 billion in quarterly revenue, up 5.4% year-over-year, and raised its full-year profit outlook. But shares tumbled 12.53%, suggesting maybe Wall Street wasn’t ready to celebrate the divorce.

Till debt do us part

CVS wasn’t always America’s healthcare Swiss Army knife. It spent $26.5 billion acquiring Caremark in 2007 and roughly $78 billion on insurer Aetna in 2018 before adding primary-care clinics and home healthcare services. The idea was to make healthcare more efficient by bringing the company that insures you, negotiates your drug prices, and provides your medical care into one union.

But the marriage came with complications. Pharmacy benefit managers, which negotiate drug prices for insurers and employers, have faced growing scrutiny over whether their business practices inflate costs and limit competition. Meanwhile, CVS’s physical pharmacies are dealing with shrinking reimbursement rates, expensive storefronts, and competition from online rivals.

Now CVS plans to spin off its roughly 9,000 retail pharmacies and related businesses by the first half of 2028, leaving Aetna, Caremark, and the rest of its healthcare operations together in what remains. Though CVS hasn’t detailed how it’ll divide its $60.7 billion debt load, both current and long-term debt are expected to retain investment-grade credit ratings.

In good news, CVS isn’t breaking up with your prescriptions. The split won’t send patients to separate locations to pick up medications—although it also doesn’t guarantee lower drug prices or cheaper insurance.

Could the parts be more than the whole?

For Wall Street, that’s the billion-dollar question. Splitting up its care and pharmacy services could help investors see what each business is worth, while giving management more freedom to invest and CVS Pharmacy room to partner with insurers that previously competed with its in-house unit.

But a corporate divorce doesn’t save all. Retail pharmacies will still face pressure on prescription margins, while the insurance and healthcare businesses remain exposed to medical costs and regulatory scrutiny.

The spinoff also doesn’t automatically make either business more profitable. For the millions of Americans navigating insurance claims, prescription prices, and pharmacy visits, the real test isn’t whether two companies are worth more than one: It’s whether either arrangement makes healthcare less of a headache. America’s healthcare system could certainly use a prescription for that.—HC

      

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Stocks

🟢 What’s up

• Novo Nordisk climbed 4.95% after raising its full-year earnings outlook, helped by stronger-than-expected sales of its Wegovy weight loss pill.
• Uber Technologies gained 4.91% on better-than-expected quarterly earnings, fueled by rapid growth in its delivery business.
• Block rallied 15.32% after beating quarterly earnings expectations and raising its full-year outlook as its AI-driven transformation gained momentum.
• Duolingo soared 25.99% thanks to a 29% jump in daily active users and an improved financial outlook.
• AppLovin surged 10.69% ahead of its quarterly earnings report, with investors betting on continued growth in its AI-powered advertising business.
• Sunrun, Plug Power, and Nextpower gained 1.27%, 3.55%, and 11.12%, respectively, as Democrats’ congressional victories boosted hopes for more favorable renewable energy policies.

🔴 What’s down

• Trump Media plunged 24.54% following Democrats’ sweep of Congress in the midterm elections, dealing a blow to the company partly owned by President Trump.
• SpaceX lost 3.81% and Tesla fell 3.34% as Democrats’ congressional victories raised concerns about tighter scrutiny of AI data centers.
• Datadog dropped 14.42% despite beating quarterly earnings expectations as investors questioned whether the software company could sustain its 30% growth rate into 2027.
• Amdocs plunged 30.07% as an escalating dispute with T-Mobile weighed on the software provider’s revenue outlook.

Results of the day

Midterm gridlock may not be all good

Illustration: Shannon May., Photos: Adobe Stock

The vote is in, and the blue wave was a big one. With US midterms behind us, the markets are rallying big time: All the major indexes ripped higher, with the Dow gaining 1,500 points in the day.

So what’s next? With Democrats definitively taking Congress, we can expect two years of gridlock. President Trump has vowed to become “Mr. Veto” on anything crossing his desk, making it hard for anyone in Washington to get much done.

But as the old Wall Street adage goes, gridlock is good for markets, right? Historically, yes. A divided government that can’t push through sweeping new regulations offers investors something they crave: predictability. The problem is that this new brand of political paralysis may not deliver.

Fiscal fights

One upcoming traffic jam with dire consequences is the debt ceiling: The US is projected to hit its $41.1 trillion limit by the summer of 2027. If Congress plays hardball and refuses to raise it without painful concessions from Trump, the Treasury will eventually run out of money. This could trigger a default, sending shockwaves through financial markets.

Another stalemate investors dread is a government shutdown. BNY Investments expects at least one next year, which could throw a wrench in the release of key economic data like the consumer price index and monthly jobs report. That would leave the Federal Reserve flying blind, with less reliable instruments to gauge the economy and set interest rates accordingly.

The bottom line: Gridlock is good for markets only as long as it stays in the ‘nothing happens’ zone. If it veers into ‘something breaks,’ investors should brace for a bumpy ride.—JD

Earnings

Morning Brew Inc.

You know something is wrong when Americans are passing up their beloved Big Macs and late-night Taco Bell runs.

Earnings from three of America’s biggest food companies this week suggest that even the country’s most familiar comfort foods are losing some of their appeal:

• McDonald’s: The fast-food giant missed revenue expectations but beat earnings estimates. US same-store sales fell 0.2% last quarter, slightly worse than the 0.1% decline analysts expected, as fewer customers visited its restaurants. Shares jumped 6.52%.
• Yum! Brands: The parent company of Taco Bell and KFC also missed revenue expectations but beat earnings estimates. Taco Bell’s US same-store sales fell 4%, far worse than the 0.9% decline analysts expected, largely due to the cyclosporiasis outbreak. KFC’s global same-store sales rose 1%, but also missed expectations of 2.1% growth. Shares gained 5.94% today.
• Kraft Heinz: The packaged-food giant beat both revenue and earnings expectations, although North American organic sales fell 3.2% and total revenue declined 2%. Shares rose 3.75%.

Cooking up a comeback

“The consumer’s in a fragile state,” Kraft Heinz CEO Steve Cahillane said on an earnings call. But Wall Street appears more optimistic, as investors reward signs of a turnaround despite sluggish sales. Food giants are pulling out all the stops to win back price-conscious customers, and cheaper prices are just the beginning.

Taco Bell is recruiting celebrities like Olivia Rodrigo and Paris Hilton to drum up excitement in ad spots, while Kraft Heinz is betting on a five-year NFL partnership to keep its brands in shoppers’ carts. McDonald’s, meanwhile, is bringing back app deals and offering free fries and $2 breakfast sandwiches to get customers through the door.

Some of those efforts appear to be paying off. Yum said Taco Bell’s newly acquired customers are spending 5% more and visiting 6% more frequently than the customers it lost, while McDonald’s reported improving US sales in September and October as its value promotions gained traction.

But discounts aren’t always a winning recipe. Kraft Heinz cut prices on Philadelphia cream cheese, prompting competitors to follow suit, only to discover that consumers weren’t buying much more of it. “We’re losing to cottage cheese and other more protein-forward [options],” Cahillane said, as Americans increasingly gravitate toward healthier foods.

Between shrinking budgets and shifting appetites, food giants have a lot on their plates. And for investors, the race is on to see which companies can adapt fastest to an increasingly fickle American palate.—SY

      

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News

• A long-awaited Zelda game is nearly here: Nintendo’s Ocarina of Time remake drops at midnight with some long-overdue upgrades.
• US private employers added a better-than-expected 86,000 jobs in October, with one tasty industry doing much of the heavy lifting.
• WNBA star Caitlin Clark just scored a first-of-its-kind endorsement deal with Dick’s Sporting Goods and Foot Locker.
• Americans may be cutting back on boats and RVs, but one pricey recreational purchase is still revving their engines.
• Pfizer wants to enter the GLP-1 race—by treating weight loss drugs like Viagra.
• It’s a good day to be a California billionaire.

Calendar

We’ll get major earnings from Toyota, Sony, Airbnb, and Cloudflare. ConocoPhillips, Canadian Natural Resources, Duke Energy, Southern Company, and Cigna also release quarterly numbers.

recs

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