August 28, 2025 • 11 mins
The stocks of Walmart Inc. and Costco Wholesale Corp. may represent a risk due to their high valuation, with forward price-earnings ratios of 34.3 times and 47 times, respectively. That's according to Bloomberg Opinion markets columnist Jonathan Levin, who writes that the "perception of safety has inflated the retailers' valuations, as investors believe they can't go down, which paradoxically puts them at a heightened risk of correction."
Jonathan discusses the implications of that trend as well as his thoughts on Federal Reserve Chair Jerome Powell's response to President Donald Trump's pressure on the central bank with Tim Stenovec and Isabelle Lee on Bloomberg Businessweek Daily.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:07):
You're listening to Bloomberg Business Week with Carol Masser and
Tim Stenoveek on Bloomberg Radio and Video.
Speaker 1 (00:15):
Maybe the star of the show today. But two stocks
look scarier, Costco and Walmart in his latest columny of
Jonathan Levin of Bloomberg Opinion, explaining why both stocks represent
a higher risk due to their valuation and their perception
of safety. So Jonathan joins us from the Miami Bureau.
All Bloomberg, Jonathan, thanks for joining us. So what Gibbs
(00:36):
tell us about how and why we got here?
Speaker 3 (00:39):
Hi? Isabelle and Tim. Yeah. I wanted to write about
this because anytime you talk about S and P five
hundred valuations, the first thing that anybody says is like, yeah,
but it's almost all these AI plays, YadA YadA, and
they have this extraordinary growth runway. That's all like a
decent argument in my view. But there are all these
(01:01):
other stocks that are kind of in humdrum industries that
are much harder to explain away. And the obvious ones here,
I think are are Costco and Walmart. And so in
my column I sort of walk through how they got
to these extraordinary for repe ratios, which are actually technically
(01:24):
richer than Navidia itself. And I land on this idea
that you know, these are companies that have long been
perceived as all weather stocks. They are stocks that tend
to perform both on a fundamental and market basis in
good times and bad. Right, the economy is humming, Costco
(01:48):
and Walmart are doing great, the economy is doing not
so well. They're grabbing market share from others. But the
problem is when you latch onto this narrative of safety
and you push valuations higher and higher, we're now like
three standard deviations abovenormal for Walmart and close to two
(02:09):
standard deviations abovenormal for Costco. When you do this, this
thing that you decided to invest in because you thought
it was safe is suddenly not really so safe anymore.
So that's my argument.
Speaker 2 (02:21):
So let's go through some of these numbers here. It's
a solid argument in my view, not just because you're
my colleague, Jonathan, but I think this makes a lot
of sense. Like Walmart and Costco, you right, actually trade
it richer blended forward price earnings ratios thirty four point
three times and forty seven times, respectively, than in Nvidia,
which trades at thirty four times, and the situation is
(02:41):
getting less tenable with time. The multiple at Walmart is
about three point three standard deviations, as you mentioned, an
average of twenty and Costco trades at one point seven
above its ten year average of thirty four. So what
do you think is what do you think is giving
the perception that these two companies are good byes, that
(03:02):
they are safer in an environment where if we see
a stumble in the economy, Yes, people are still going
to go to Costco and they're still going to go
to Walmart. That's the whole idea with this type of trade.
Speaker 3 (03:16):
Yeah, that's the story. I would say, what made these
stocks really really great stories over like the past three
to four years is the fact that they are so safe,
but they have also delivered pretty impressive upside. And you know,
you know the story is that, like we've been in
(03:37):
a good but not great economy, so there's been sort
of some belt tightening, but the economy has never gotten
so bad that people have started to suffer layoffs and
that sort of thing that is like the sweet spot
for these these companies, Like forget, consumer demand is still there,
but people are looking for ways to save some money.
(03:58):
It's a sweet spot, but in mind, it is not
a sweet spot that lasts forever. The other thing that
you can say is, specifically, in the case of Walmart,
they've sort of inflected to a little bit more of
an e commerce play. So that's another argument that you
hear pretty commonly. You should be slapping an e commerce
multiple on this company rather than like a big box
(04:21):
retail or multiple. But the problem with all of these arguments,
in my opinion, is these companies are already massive. They
have massive, massive footprints, and in the not so decent past,
you would have thought, geez, they're so big that they
can't really grow top line like much faster than the
economy itself. And at some point we're going to settle
(04:44):
back into that reality. They just can't grow aggregate demand
to the sky. And that's also sort of the heart
of the reason why I allude to this idea that
in some ways they're more dangerous that then Navidia, Like,
at least with a Navidia you can plausibly tell the
(05:04):
story that they're going to grow the top line a
kajillion percent over the next five or ten years and
you know, maybe it's hard to argue with those people.
Let's be honest, it's, you know, whatever fairy tale you
can tell, but with Walmart and Costco, you can only
(05:24):
tell so much of a so much of a fairy
tale as I As I said, they are simply hemmed
in by the size of like the US economy and
the international markets where they where they operate, the sky
is very much not the limit. And so at a
certain point you have to return to kind of first
(05:45):
principles and say, geez, these companies are trading at stingchier
earnings yields than like a two year treasury note? Does
Does that make sense?
Speaker 1 (05:55):
Yeah?
Speaker 2 (05:56):
No, Jonathan. This is this is why your story, your
your column is one of the most read on the
Bloomberg terminal today. Before we let you go, we're not
going to let you get out of here without talking
about your calling from yesterday about FED Chair j Powell,
about what you believe he should do when it comes
to the situation with the allegations against FED Governor Lisa Cook.
(06:19):
We did hear from the Federal Reserve yesterday. This Federal
Reserve said be a spokesperson in a statement. As always,
the Federal Reserve will abide by any court decision. You
argue in your piece that J. Powell needs to address
this personally in head on.
Speaker 3 (06:36):
Why, Yeah, exactly, Well, first and foremost, you know, I
understand why J. Powell has done things the way he
has up into this point. There's don't get anywhere by
trying to go like tit for tat with a bully.
And J. Powell has been a survivor, right. J Powell
(06:58):
survived the first Trump minute station, uh, and he did
so by sort of keeping his head down and turning
the other tree cheek. However, at this point, the FED
is losing credibility by letting Donald Trump suck up all
the oxygen in the room, by letting him dominate the conversation.
And you are not going to save FED credibility by
(07:23):
keeping your head down, focusing on the macro outlook and
putting putting out like a tersely worded press release. When
Donald Trump is on truth social and on television every
single day actively through his rhetoric right now, already undermining
(07:43):
the public's the public's faith in the Federal Reserve. And
so yeah, I would like I would like to see J.
Powell out there uh making making his case, making his
case for why, over decades and decades, central banks around
the world have decided that this is a good arrangement
(08:05):
for the citizens of their countries. This is an arrangement
that empirically delivers the best macroeconomic outcomes, the lowest sustainable inflation,
and as such, the most sustainable growth trajectories.
Speaker 1 (08:22):
You also cite the Nixon era FED as a cautionary tale.
Can you talk to us about the serious long term
economic dangers when Americans think, or if Americans think and
begin to doubt the FED ability to make politically independent decisions.
Speaker 3 (08:37):
Yeah, exactly. I mean, this is this is in the history.
This is not at all theoretical. I mean, we've heard
this story many times. But you know, the seventies inflation
was caused by a lot of things. It was caused
by some energy shocks. A very very strong argument that
it wouldn't have sat around, infestered and become a decade
(09:00):
long problem that Vulkar had to had to crush with
a serious deep recession if Nixon had not pressured the
Federal Reserve to keep policy unduly easy in the early
nineteen seventies for political purposes. And so we know now,
(09:20):
and we know through the examples of other central banks
around the world, that that is dangerous and it is plausible.
It is plausible, and I think you see this in
the markets, that Donald Trump could run the economy hot
for a few years and see minimal consequences. Maybe he
would benefit from that politically, Maybe Republicans as a party
(09:43):
would benefit from that politically. But in the end, gon.
Speaker 2 (09:48):
Well, I was just going to say, why are you
convinced that it would be possible to run the economy
hot for a couple of years with minimal consequences when
we saw the Biden administration do that in the wake
of COVID and the consequence showed up pretty quickly.
Speaker 3 (10:03):
Yeah, that's an excellent that's an excellent point. Fair point,
and you don't play with fire. I would say there
is another scenario in which Trump could get away with
running the economy hot, maybe not red hot, but hot.
Bear in mind that supply chains coupled with stimulus was
(10:23):
what really caused the inflation of twenty twenty one and
twenty twenty two. But I think there's a scenario which
Trump gets away with this for a while. But what
I want people to take away with away from this
is you don't get away from this. You don't get
away with this forever. Nobody gets away with this forever.
And so it can be good in the near term
(10:45):
for somebody's political fortunes, but it's never good for the
American people.
Speaker 2 (10:49):
Jonathan Levin check out his columns No easy way to
tie them together Costco, Walmart, Nvidia, and yes, of course
J Powell and the Fed. You can do that on
the Bloomberg turn little. You just type in o PI
and go on the Bloomberg. Also, you can check it
out at Bloomberg dot com as well. M
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:07):
You're listening to Bloomberg Business Week with Carol Masser and
Tim Stenoveek on Bloomberg Radio and Video.
Speaker 1 (00:15):
Maybe the star of the show today. But two stocks
look scarier, Costco and Walmart in his latest columny of
Jonathan Levin of Bloomberg Opinion, explaining why both stocks represent
a higher risk due to their valuation and their perception
of safety. So Jonathan joins us from the Miami Bureau.
All Bloomberg, Jonathan, thanks for joining us. So what Gibbs
(00:36):
tell us about how and why we got here?
Speaker 3 (00:39):
Hi? Isabelle and Tim. Yeah. I wanted to write about
this because anytime you talk about S and P five
hundred valuations, the first thing that anybody says is like, yeah,
but it's almost all these AI plays, YadA YadA, and
they have this extraordinary growth runway. That's all like a
decent argument in my view. But there are all these
(01:01):
other stocks that are kind of in humdrum industries that
are much harder to explain away. And the obvious ones here,
I think are are Costco and Walmart. And so in
my column I sort of walk through how they got
to these extraordinary for repe ratios, which are actually technically
(01:24):
richer than Navidia itself. And I land on this idea
that you know, these are companies that have long been
perceived as all weather stocks. They are stocks that tend
to perform both on a fundamental and market basis in
good times and bad. Right, the economy is humming, Costco
(01:48):
and Walmart are doing great, the economy is doing not
so well. They're grabbing market share from others. But the
problem is when you latch onto this narrative of safety
and you push valuations higher and higher, we're now like
three standard deviations abovenormal for Walmart and close to two
(02:09):
standard deviations abovenormal for Costco. When you do this, this
thing that you decided to invest in because you thought
it was safe is suddenly not really so safe anymore.
So that's my argument.
Speaker 2 (02:21):
So let's go through some of these numbers here. It's
a solid argument in my view, not just because you're
my colleague, Jonathan, but I think this makes a lot
of sense. Like Walmart and Costco, you right, actually trade
it richer blended forward price earnings ratios thirty four point
three times and forty seven times, respectively, than in Nvidia,
which trades at thirty four times, and the situation is
(02:41):
getting less tenable with time. The multiple at Walmart is
about three point three standard deviations, as you mentioned, an
average of twenty and Costco trades at one point seven
above its ten year average of thirty four. So what
do you think is what do you think is giving
the perception that these two companies are good byes, that
(03:02):
they are safer in an environment where if we see
a stumble in the economy, Yes, people are still going
to go to Costco and they're still going to go
to Walmart. That's the whole idea with this type of trade.
Speaker 3 (03:16):
Yeah, that's the story. I would say, what made these
stocks really really great stories over like the past three
to four years is the fact that they are so safe,
but they have also delivered pretty impressive upside. And you know,
you know the story is that, like we've been in
(03:37):
a good but not great economy, so there's been sort
of some belt tightening, but the economy has never gotten
so bad that people have started to suffer layoffs and
that sort of thing that is like the sweet spot
for these these companies, Like forget, consumer demand is still there,
but people are looking for ways to save some money.
(03:58):
It's a sweet spot, but in mind, it is not
a sweet spot that lasts forever. The other thing that
you can say is, specifically, in the case of Walmart,
they've sort of inflected to a little bit more of
an e commerce play. So that's another argument that you
hear pretty commonly. You should be slapping an e commerce
multiple on this company rather than like a big box
(04:21):
retail or multiple. But the problem with all of these arguments,
in my opinion, is these companies are already massive. They
have massive, massive footprints, and in the not so decent past,
you would have thought, geez, they're so big that they
can't really grow top line like much faster than the
economy itself. And at some point we're going to settle
(04:44):
back into that reality. They just can't grow aggregate demand
to the sky. And that's also sort of the heart
of the reason why I allude to this idea that
in some ways they're more dangerous that then Navidia, Like,
at least with a Navidia you can plausibly tell the
(05:04):
story that they're going to grow the top line a
kajillion percent over the next five or ten years and
you know, maybe it's hard to argue with those people.
Let's be honest, it's, you know, whatever fairy tale you
can tell, but with Walmart and Costco, you can only
(05:24):
tell so much of a so much of a fairy
tale as I As I said, they are simply hemmed
in by the size of like the US economy and
the international markets where they where they operate, the sky
is very much not the limit. And so at a
certain point you have to return to kind of first
(05:45):
principles and say, geez, these companies are trading at stingchier
earnings yields than like a two year treasury note? Does
Does that make sense?
Speaker 1 (05:55):
Yeah?
Speaker 2 (05:56):
No, Jonathan. This is this is why your story, your
your column is one of the most read on the
Bloomberg terminal today. Before we let you go, we're not
going to let you get out of here without talking
about your calling from yesterday about FED Chair j Powell,
about what you believe he should do when it comes
to the situation with the allegations against FED Governor Lisa Cook.
(06:19):
We did hear from the Federal Reserve yesterday. This Federal
Reserve said be a spokesperson in a statement. As always,
the Federal Reserve will abide by any court decision. You
argue in your piece that J. Powell needs to address
this personally in head on.
Speaker 3 (06:36):
Why, Yeah, exactly, Well, first and foremost, you know, I
understand why J. Powell has done things the way he
has up into this point. There's don't get anywhere by
trying to go like tit for tat with a bully.
And J. Powell has been a survivor, right. J Powell
(06:58):
survived the first Trump minute station, uh, and he did
so by sort of keeping his head down and turning
the other tree cheek. However, at this point, the FED
is losing credibility by letting Donald Trump suck up all
the oxygen in the room, by letting him dominate the conversation.
And you are not going to save FED credibility by
(07:23):
keeping your head down, focusing on the macro outlook and
putting putting out like a tersely worded press release. When
Donald Trump is on truth social and on television every
single day actively through his rhetoric right now, already undermining
(07:43):
the public's the public's faith in the Federal Reserve. And
so yeah, I would like I would like to see J.
Powell out there uh making making his case, making his
case for why, over decades and decades, central banks around
the world have decided that this is a good arrangement
(08:05):
for the citizens of their countries. This is an arrangement
that empirically delivers the best macroeconomic outcomes, the lowest sustainable inflation,
and as such, the most sustainable growth trajectories.
Speaker 1 (08:22):
You also cite the Nixon era FED as a cautionary tale.
Can you talk to us about the serious long term
economic dangers when Americans think, or if Americans think and
begin to doubt the FED ability to make politically independent decisions.
Speaker 3 (08:37):
Yeah, exactly. I mean, this is this is in the history.
This is not at all theoretical. I mean, we've heard
this story many times. But you know, the seventies inflation
was caused by a lot of things. It was caused
by some energy shocks. A very very strong argument that
it wouldn't have sat around, infestered and become a decade
(09:00):
long problem that Vulkar had to had to crush with
a serious deep recession if Nixon had not pressured the
Federal Reserve to keep policy unduly easy in the early
nineteen seventies for political purposes. And so we know now,
(09:20):
and we know through the examples of other central banks
around the world, that that is dangerous and it is plausible.
It is plausible, and I think you see this in
the markets, that Donald Trump could run the economy hot
for a few years and see minimal consequences. Maybe he
would benefit from that politically, Maybe Republicans as a party
(09:43):
would benefit from that politically. But in the end, gon.
Speaker 2 (09:48):
Well, I was just going to say, why are you
convinced that it would be possible to run the economy
hot for a couple of years with minimal consequences when
we saw the Biden administration do that in the wake
of COVID and the consequence showed up pretty quickly.
Speaker 3 (10:03):
Yeah, that's an excellent that's an excellent point. Fair point,
and you don't play with fire. I would say there
is another scenario in which Trump could get away with
running the economy hot, maybe not red hot, but hot.
Bear in mind that supply chains coupled with stimulus was
(10:23):
what really caused the inflation of twenty twenty one and
twenty twenty two. But I think there's a scenario which
Trump gets away with this for a while. But what
I want people to take away with away from this
is you don't get away from this. You don't get
away with this forever. Nobody gets away with this forever.
And so it can be good in the near term
(10:45):
for somebody's political fortunes, but it's never good for the
American people.
Speaker 2 (10:49):
Jonathan Levin check out his columns No easy way to
tie them together Costco, Walmart, Nvidia, and yes, of course
J Powell and the Fed. You can do that on
the Bloomberg turn little. You just type in o PI
and go on the Bloomberg. Also, you can check it
out at Bloomberg dot com as well. M
Hosts And Creators
Tim Stenovec
Carol Massar
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