Costco Wholesale (COST) stock failed to break the $1,000 barrier ahead of Fed Chair Jerome Powell’s Jackson Hole speech, triggering heavier selling pressure. Even so, Costco outperformed much of the retail sector. Powell’s warning of a “challenging situation” for the U.S. economy could cut both ways for the wholesale retailer.
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Still, a clear bearish technical breakdown, retail’s relative weakness versus the broader market, and Costco’s historically asymmetric risk profile heading into its earnings call next month support a short-term Bearish stance.
Costco’s Technical Breakdown
The “$1,000 wall” is a critical psychological and technical level that has established a clear line in the sand. Costco’s stock is in a pinch following the rejection at $1,000, with its price trading near key support (the 200-day moving average).
I suspect a break below this level could trigger a sustained bear move in COST, with near-term macro conditions adding to the downside risk.
Even so, Costco wasn’t alone in its struggles last week and held up better than its peers. COST slipped 2.14%, while Walmart (WMT) and Target (TGT) fell 3.17% and 4.58%, respectively, against a modest gain in the broader market as shown by the S&P 500 (SPX).
These moves suggest that negative sentiment is weighing on retail broadly, likely tied to concerns about tariffs or shifting consumer spending. For bulls, however, Costco’s relative resilience underscores its defensive appeal in an otherwise pressured sector.
Powell’s Speech Becomes a Double-Edged Sword
After carefully reading Jerome Powell’s Jackson Hole speech, two quotes stood out, starting with the following:
“The effects of tariffs on consumer prices are now clearly visible. We expect those effects to accumulate over the coming months, with high uncertainty about timing and amounts.”
Inflationary pressures impact both Costco’s operational costs and its members’ purchasing power. As a low-margin, high-volume retailer, Costco’s business model is susceptible to rising costs for goods. In this vein, it’s not surprising to see the retail sector particularly impacted by this sentiment.
In response to inflation, retailers generally have two options: eat the costs or raise prices. Neither option is optimal, and it is often the case that both are necessary. Paradoxically, this inflationary environment could also boost Costco’s core appeal due to its reputation for offering bulk goods at low prices. This likely explains why Costco’s stock has “weathered the storm” relative to its peers.
The other notable comment from the Jackson Hole symposium was:
“Overall, while the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers. This unusual situation suggests that downside risks to employment are rising.”
Another key distinction between Costco and Walmart is that its membership base typically skews towards a higher-income demographic, which is more insulated from downturns in the labor market. Theoretically, Costco may be more resilient to a moderate economic slowdown than retailers that serve a lower-income customer base, such as Walmart. With that said, there is concern that its members may “trade down” within its product mix, forgoing luxury items, like electronics, in favor of essential goods.
Evaluating the Qualia and Quantia of COST Stock
Retail investor sentiment typically acknowledges that Costco is a high-quality company with a robust business model. On the other hand, there is also a persistent concern that its stock is dangerously overvalued. And it would seem astute investors are taking note. Analyst commentary from both professional and retail investors suggests that although Costco’s historical average is ~16x earnings, it remains a good buy at ~32x because that’s far better than the S&P 500 average. However, whether or not COST remains a good buy if the stock trades at 48x its earnings is another matter.
Indeed, many are wary of Costco’s P/E ratio of 54.4, which is nearly three times that of its peers in the Consumer Staples sector. It goes without saying that expectations are sky-high. There is an interesting historical post-earnings price behavior to note. In the past four quarters, misses have been punished more severely than beats have been rewarded:
| Quarter | Report Date | EPS Result | EPS Surprise | 1-Day Stock Price Change (%) |
| FQ3 2025 | May 29, 2025 | Beat | +0.71% | +3.1% |
| FQ2 2025 | Mar 6, 2025 | Miss | -1.71% | -6.10% |
| FQ1 2025 | Dec 12, 2024 | Beat | +0.79% | +0.1% |
| FQ4 2024 | Sep 26, 2024 | Beat | +1.98% | -1.80% |
So, a beat alone is not sufficient to guarantee a positive stock reaction (as evidenced by the stock’s performance following the FQ4 2024 beat). Given this asymmetric reality, with earnings news just a month away, existing shareholders may want to consider trimming their COST holdings.
Is Costco a Buy, Sell, or Hold?
On Wall Street, COST carries a consensus Moderate Buy rating based on 15 Buy, nine Hold, and zero Sell ratings in the past three months. Costco’s average stock price target of $1,106.29 implies an upside potential of 17.5% over the next twelve months.
Costco’s Strength Endures as Earnings Risk Warrants Prudence
Costco heads into its FQ4 earnings on somewhat shaky footing, warranting caution. While much of the risk appears to be priced in, Costco’s long-term potential remains undeniable, and its unique advantages—such as Kirkland Signature and a loyal membership base—make it a safer bet than most of its retail peers. Still, despite my long-term bullish view, I see merit in trimming a position ahead of pivotal news on the horizon.