The valuations of American retail giants Wal-Mart and Costco have surpassed NVIDIA, and investors' blind trust in these "safe stocks" may be brewing a dangerous market correction.

On August 27, Bloomberg financial commentator Jonathan Levin published an article pointing out that while the market's attention is focused on NVIDIA's high stock price, a more hidden and perhaps more dangerous valuation bubble may be forming around Costco and Wal-Mart, two retail giants considered "absolutely safe."

The author notes that Wal-Mart and Costco currently have forward P/E ratios of 34.3x and 47x respectively, both higher than NVIDIA's 34x. These two companies' stocks are expensive not entirely due to their business growth prospects, but more due to a "safety paradox."

The article points out that investors generally view them as all-weather safe havens that can remain rock-solid regardless of economic conditions, and this belief has pushed their stock prices to unreasonable heights. However, the author emphasizes that history repeatedly proves that when an asset is labeled as "foolproof" by the market, it often becomes the center of the next storm most easily.

The author warns that just as the "Hindenberg" airship maintained an almost perfect flight record before its crash, the market's most painful sell-offs often occur in areas that people mistakenly believe to be absolutely safe.

**Valuation Levels Far Exceed Reasonable Range**

The article cites data showing that Wal-Mart and Costco have forward P/E ratios as high as 34.3x and 47x respectively, while NVIDIA's P/E ratio during the same period is "only" 34x.

More importantly, this high valuation has seriously deviated from their own historical levels.

The author emphasizes that Wal-Mart's current P/E ratio is about 3.3 standard deviations higher than its average over the past decade (2015-2024), while Costco is also about 1.7 standard deviations higher.

In plainer language, these two companies' stock prices have entered a statistically "extremely expensive" range.

The author laments that two down-to-earth retail stocks have earnings yields far lower than the yield on two-year U.S. Treasury bonds, which is extremely unusual.

The excellent performance of both companies does have fundamental support. In an environment where consumers are tightening their belts, they are capturing a larger share of ordinary household wallets and have even expanded their influence among high-income groups. Wal-Mart is transforming into an e-commerce company, further boosting growth expectations.

But the article points out that as mature enterprises with already massive business territories, their addressable market size is limited by consumer demand, and growth prospects cannot fully explain current valuation levels.

**The "Halo" and Reality of All-Weather Stocks**

The author believes that mainly "safety perception" has pushed up these retailers' valuations. Investors believe these stocks "cannot fall," and this thinking itself increases correction risk.

Costco and Wal-Mart are viewed as "all-weather stocks." Their reputation for good value means they profit during economic booms and capture market share during economic downturns.

During 2020-2024, despite experiencing the pandemic, the worst inflation in 40 years, and aggressive rate hikes, both companies ranked among only 48 companies in the S&P 500 that never experienced year-over-year declines in revenue or earnings per share.

In terms of market performance, since the end of 2019, Costco has achieved returns of 250% and Wal-Mart 163%, both exceeding the S&P 500's 118%.

More impressively, they achieved high returns with extremely low volatility, with risk-adjusted returns both ranking in the top ten of the S&P 500.

The author points out incisively:

These stocks have soared because investors believe they cannot fall! Paradoxically, this makes them face higher pullback risk.

**Historical Warning: When "Foolproof" Is No Longer Safe**

The author then cites multiple historical cases to support his viewpoint.

He mentions the U.S. Treasury market in 2021, when investors, after experiencing decades of low interest rates, generally believed inflation was dead, only to encounter sudden inflation and rate hikes, leading to bond price crashes and ultimately triggering a banking crisis.

Similarly, before the 2007 financial crisis, many people firmly believed housing prices would never fall, and this belief pushed housing prices to unsustainable heights, ultimately leading to an avalanche-like collapse.

These historical events all point to one pattern: the so-called "safety paradox" is everywhere in financial markets. When an asset's safety becomes consensus, risk is often already quietly accumulating.

For Wal-Mart and Costco, the author believes we are at a similar crossroads.

The recent macroeconomic environment—high interest rates and stubborn inflation making consumers budget-conscious, but the economy not bad enough to cause massive unemployment—has created a perfect "sweet spot" for these two companies.

However, the author emphasizes this is a "unique and unstable balance that won't last forever."

**Future Risks and Market Irrationality**

The article emphasizes that not even a full economic recession is needed. Perhaps just a slight economic growth slowdown would be enough for investors to realize that "demand cannot grow infinitely," thus beginning to reassess those ridiculously high valuations.

If these two companies' P/E ratios return to their average levels over the past decade, with earnings expectations unchanged, Wal-Mart's stock price would face a 39% decline, while Costco could drop 28%.

Of course, the author also acknowledges that "safety" itself can become a self-fulfilling prophecy for quite a long time.

If the public believes something is a sure bet, more and more people will buy in, driving prices up, which in turn seems to confirm the initial judgment. For Wal-Mart and Costco, this "safety symphony" has been playing for several years.

The article concludes that this piece is not predicting a crisis, but reminding investors how important it is to maintain clarity and vigilance when everyone is running in the same direction.