• Stocks: The S&P 500 climbed thanks to news that the Federal Reserve would not raise interest rates this month, and rode trader optimism awaiting major-cap tech companies like Alphabet and Microsoft reporting earnings after the bell.
• Bonds: Bond yields rose higher on the Fed’s decision not to hike rates.
• Commodities: Oil prices escalated on news that the US may reportedly renew strikes on Iran after the midterm elections, along with US crude oil inventory depleting for the fourth straight week.

Crypto

Illustration: Shannon May, Photo: Adobe Stock

Unlike the friend who’s been “one win away” from breaking even, Robinhood is making money from its gambling habit.

The trading platform’s third-quarter earnings show that prediction markets generated $173 million in revenue last quarter, more than six times as much as a year ago and more than Robinhood earned from either stock trading ($121 million) or crypto ($120 million). In fact, prediction markets added roughly $146 million in revenue year-over-year, almost perfectly offsetting $148 million lost from crypto trading.

The shift helped Robinhood notch record quarterly revenue of $1.42 billion, up 12% from a year earlier. Still, shares fell 3.30% today as net income declined 14% to $476 million and EPS missed estimates. Operating expenses also climbed 16% to $739 million.

Life, liberty, and the pursuit of parlays

It’s not hard to see why Robinhood is betting big on prediction markets. As prediction platforms put it, why settle for picking winning stocks when you can wager on whether Jesus returns before GTA VI, or whether Zelenskyy wears a suit to meet Trump?

Just this past weekend, prediction markets recorded more than $14 billion in notional contract volume, their busiest two-day stretch ever, fueled by the NFL, NBA, World Series, and college football. Kalshi alone accounted for more than $10 billion. By this week, the NBA announced official partnerships with both Polymarket and Kalshi.

Politics are seeing the action, too. With midterms less than a week away, more than $1.4 billion has already been traded on election-related prediction markets. Traders are getting increasingly specific with bets, wagering on everything from victory margins to voter turnout. In fact, 58% of this year’s congressional election markets focus on winning margins, compared with just 16% on outright winners.

Not so fast

Just because Americans can’t get enough of prediction markets doesn’t mean they’re bringing new customers to Robinhood. “Prediction markets are becoming a second outlet for the same core active traders ‌rather ⁠than a funnel for new customers,” Bill Birmingham, research head at REX financial, told Reuters. That’s an important distinction for a company counting on prediction markets to become its next big growth engine.

Regulators could end the party, too. Sports-related event contracts occupy a legal gray area between federally regulated financial derivatives and state-regulated gambling. Robinhood has already sensed the pressure, agreeing in September to stop offering new sports-related contracts in Michigan amid a legal dispute with state regulators.

Will Robinhood hit the jackpot on America’s gambling obsession, or will regulators send it home with empty pockets? We’ll leave you to place your bets.—SY

      

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Stocks

🟢 What’s up

• SK Hynix surged 13.30% after reporting that its quarterly operating profit skyrocketed 632% from a year earlier.
• Wendy’s jumped 15.15% after Nelson Peltz’s Trian Fund Management offered $1.4 billion to buy the fast-food chain.
• Vertiv rallied 16.40% on stronger-than-expected quarterly earnings and a raised full-year outlook, driven by demand for AI data center infrastructure.
• GE HealthCare climbed 6.62% after beating quarterly expectations and raising its annual revenue growth forecast.
• Flex surged 11.61% after raising its full-year forecast well above Wall Street expectations, helped by an acquisition tied to its data center infrastructure business.
• Wingstop rose 12.18% after quarterly earnings topped expectations, despite revenue falling short of Wall Street estimates.
• Stellantis gained 13.04% after reporting higher quarterly revenue and operating profit despite burning through $4.5 billion in cash.

🔴 What’s down

• F5 dropped 20.43% after rising operating expenses and a disappointing profit forecast overshadowed solid quarterly results.
• Boston Scientific sank 5.84% after cutting its full-year outlook as disruptions from an August cyberattack weighed on its business.
• Enphase Energy plunged 16.03% after missing quarterly expectations and lowering its outlook amid weak demand for residential solar systems.

Decision of the day

The Fed votes to hold rates steady

Illustration: Shannon May, Photos: Adobe Stock, Tom Williams/Getty Images, Lance Nelson/Getty Images

Elections are next Tuesday, but the Federal Reserve has already cast its ballot: interest rates are staying put.

The decision to keep rates steady at 3.75% to 4.00% was widely expected, but not unanimous. Two of the central bank’s 12 members pushed for a rate hike, citing inflation that’s still running hot at 3.7%. That’s a shift from September, when the group unanimously agreed to raise rates for the first time in over three years.

“Quashing inflation is not about some fixed individual date on a calendar,” chair Kevin Warsh said. Otherwise “this job would be easier, and we wouldn’t be suffering from nearly six years of inflation above target.”

While the Fed family may be divided, its decision brought relief to markets—and good news to politicians during their last days on the campaign trail.

The calm before the election

The Fed rarely messes with rates right before Americans head to the polls. In the past 32 years, it’s adjusted rates at their final meeting before ballots drop in only six of 16 election years—cutting rates three times and raising them three others.

The Fed has met in the week before an election just four times, and changed rates twice—both amid economic dumpster fires. As the subprime mortgage crisis spiraled in 2008, it slashed rates by half a percentage point six days before Barack Obama won the White House. In 2022, it boosted rates by three-quarters of a point to tame inflation’s wildest run in four decades.

Now what? A December rate hike looks likely, with odds around 85%. And while Warsh says the Fed will reduce the number of meetings dedicated to rate-setting next year, markets are pricing in three hikes total by September 2027, given that tariffs, Iran-inflated energy costs, and rampant AI spending could push prices higher still.

In other words, Tuesday’s winners may be the only ones breathing easier anytime soon.—JD

Restaurants

Illustration: Shannon May, Photos; Adobe Stock

Burger King has the Whopper. McDonald’s has the Big Mac. Wendy’s has the Baconator. For decades, America’s fast-food giants have jostled over who makes the better burger.

But Burger King’s US president Tom Curtis may have found another way to win the fast-food fight—by listening to people who think his burgers aren’t good enough.

Back in February, Burger King debuted an unconventional feedback form: The chain made their CEO’s phone number public, inviting any customer to call in with concerns. Curtis has since received more than 100,000 calls and messages. Curtis personally returns about 40 calls a week, sometimes while sitting at home on the weekends. And while the experiment was supposed to last just a few weeks, it’s been such a smash that it’s still going.

Turns out, customer complaints can be good for business. Burger King has revamped its Whopper with a new bun and better mayo, while upgrading its chicken nuggets and restaurants. Sales of the improved Whopper have risen about 20%, according to Curtis. Last quarter, Burger King’s US same-store sales jumped 8.5%, compared with just 0.8% at McDonald’s.

Customer is king

At a time when companies are pouring billions into AI and automation, some executives are finding value in doing something surprisingly old-fashioned: talking to their customers.

Former Apple CEO Tim Cook famously started his mornings at 5am by reading customer emails, while Delta CEO Ed Bastian has said that he reads every email sent to his public inbox. Starbucks CEO Brian Niccol has similarly made conversations with customers and baristas part of his turnaround strategy, as the coffee chain reported 8.1% same-store sales growth in North America last quarter.

In fact, Burger King has learned the importance of human conversation in more ways than one. The chain is rethinking its test rollout of AI-powered drive-thrus after finding that some customers would rather drive away than talk to a robot. Last month the company said it was making it easier to request a human instead.

Will Wall Street bite?

Burger King’s parent, Restaurant Brands International, has gained roughly 12% this year. Yet despite Burger King’s sales growth, shares fell after its last earnings report thanks to rising beef costs and weaker performance at other brands. Burger King’s turnaround campaign has also cost hundreds of millions in restaurant renovations and marketing, making it difficult to isolate the financial impact of Curtis’s phone calls.

Restaurant Brands will report third-quarter earnings tomorrow morning, allowing us to see whether Burger King’s momentum continues. Sometimes the recipe for a corporate comeback is as simple as a better bun, a little more mayo, and a CEO willing to swallow some criticism.—HC

      

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News

• Small trucking companies are getting squeezed by diesel, insurance, and debt costs, turning America’s freight slump into a bankruptcy convoy.
• The Eagles have pushed more than $500 million of salary-cap costs into future seasons, proving even NFL dynasties eventually have to worry about the bills.
• The Energy Department is backing Constellation with $5 billion to upgrade nuclear plants as AI data centers keep eating the grid.
• DoorDash is nearing a $17 billion deal for Instacart, taking its delivery ambitions from dinner to the entire grocery cart.
• Dropbox is cutting about 6% of its workforce as its longtime CEO steps aside, putting the cloud company through a hard reboot.
• The FTC and 20 states sued Dollar General for allegedly charging shoppers more at checkout than its shelf prices, making “dollar” a loose suggestion.

Calendar

Amazon and Intel headline tech earnings, while Eli Lilly and Merck report from Big Pharma. Mastercard, Starbucks, Caterpillar, and energy giants Shell and TotalEnergies also release quarterly numbers. Plus, we’ll have a few more economic announcements with the advance GDP estimate for Q3, as well as PCE and core PCE inflation.

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