Retail giants face valuation squeeze as defensive status raises growth expectations

Key points

• Costco shares are down 16% from their May peak, while Walmart has seen similar declines despite adding customers.
• Investors priced both retailers as defensive plays against a weaker consumer, creating a high valuation premium.
• Costco reported strong sales and plans to open 33 new warehouses, but the stock only rose 3% post-earnings due to high expectations.
• Walmart’s US comparable-sales growth slowed to its weakest pace in six years, triggering a 9% stock drop despite beating expectations.
• The 'defensive' reputation has backfired, making investors more sensitive to any signs of slowing spending or minor earnings caveats.

Background

Recent archive coverage noted that Costco quietly ended its 'Costco Next' online marketplace in September 2026, a move that may have signaled a strategic shift away from third-party vendor partnerships. Additionally, earlier reports highlighted Costco's focus on affordable seasonal goods, reinforcing its positioning as a value-driven retailer during periods of consumer caution.

Why it matters

The divergence between physical store traffic and stock performance highlights a shift in market dynamics where 'defensive' stocks are no longer safe havens but high-growth expectations. This trend may signal broader skepticism about consumer resilience and the limits of value retail in a volatile economic environment.

What to watch

Investors will closely watch upcoming earnings for both retailers, particularly focusing on membership fee growth for Costco and comparable sales trends for Walmart. Any further slowdown in consumer spending could trigger additional sell-offs, while strong growth may be required to reverse the recent declines.