Brew Markets Daily – September 29, 2025

Episode Title: Why the Markets Don't (Yet) Care About a Govt Shutdown & Is Costco Overvalued?
Host: Ann Berry
Producer/Co-host: John
Length: ~22 Minutes

Overview

On this episode of Brew Markets, Ann Berry unpacks two major stock market stories:

• Why the stock market is largely unfazed by an imminent U.S. government shutdown, explaining the market’s historical reaction patterns and the real-world ripple effects.
• An investigation into Costco’s recent earnings, stock price trends, and whether it's currently overvalued, including a deep dive into key financial ratios and market sentiment.
• A breakdown of the OpCo/PropCo structure as it relates to real estate-heavy companies like Six Flags, and how a similar structure might impact firms such as Costco.
• Bonus: Brief coverage of notable closing market headlines and a record-breaking private equity deal.

1. U.S. Government Shutdown: Why Aren’t Markets Panicking?

(00:01 – 04:31)

Key Points:

• Political Background: Senate negotiations are ongoing to prevent a shutdown, primarily due to deadlocks on funding, Medicaid, and tax credits. The Trump administration seems positioned to blame Democrats if a shutdown occurs and may use it as an opportunity to trim the federal workforce.
• Market Response: Markets are stable despite the threat of shutdown—this is historically consistent. Since 1976, over 20 shutdowns have generally resulted in only modest, short-lived declines for the S&P 500.
• Historical Context: For example, during the 2013 shutdown (16 days), the S&P fell less than 3% and rallied by year's end.
• Investor Psychology: Ann notes, “Investors generally assume that shutdowns are temporary political standoffs.” (Ann, 02:36)
• Real-world Impact: Federal workers face missed paychecks; contractors and small businesses suffer more lasting financial hits.
• Long-term Market Risks: Only when a shutdown overlaps with debt ceiling debates do creditworthiness concerns shake both equities and treasuries.
• Fiscal Deficit: Lukewarm demand for U.S. Treasuries points to growing global concern over the $2T U.S. fiscal deficit.

Notable Quote:

“The current market shrug is actually consistent with history.” — Ann Berry (01:48)

2. Costco Earnings: A “Beast” Losing Market Favor?

(04:36 – 14:45)

Key Discussion Points:

• Costco’s Profile: Market cap of $400B+, over 150% stock price growth in five years, trailing-12-month revenue at $275B; described as “an absolute beast.” (Ann, 04:36)
• Earnings Recap:
  • Q4 Revenue: $86.2B (beat by $200M)
  • EPS: $5.87 (beat by $0.07)
  • Same-Store Sales: 5.7% growth, but missed consensus (5.9% expected)—second consecutive miss in this crucial retail metric.
  • Global Footprint: 914 warehouses, including significant international presence.
• Membership Model Strength:
  • 80M+ paid membership accounts.
  • Membership fees last quarter: $1.7B; recent fee increase after 7 years.
  • High consumer loyalty and uniquely lenient return policy.

Memorable Exchange:

• On the leniency of Costco's return policy:

  “You can basically return anything at any time for any reason, no questions asked.” — John (09:20) “To be able to shop with that level of security is excellent.” — John (09:54)

Stock Market Reaction:

• Despite solid revenues, the stock dropped about 4% following earnings, and is down 1% YTD—prompting a deep dive into valuation.

3. Is Costco Overvalued? Comparing Ratios with Growth Giants

(11:00 – 14:45)

Key Financial Metrics:

• Price-to-Earnings (P/E): Costco trades at 45–55x earnings—similar to tech darling Nvidia.
• PEG Ratio (P/E to Growth): Costco’s is nearly 5x, much higher than Nvidia’s 1.3x and Palo Alto Networks’ <2x.
• Ann’s Analysis: “... the poster child of AI, the fuel, the engine for the next, you know, the next engine of growth and technology is less expensive to buy on a growth basis right now than Costco.” (Ann, 13:11)

Conclusion:
Costco’s valuation is high for a company with slowing growth. This premium is due to its “sticky” membership model and recurring revenue, but skepticism is emerging: Are retail giants like Costco and Walmart now too expensive?

4. OpCo / PropCo Structures Explained – The Six Flags Example

(14:46 – 19:00)

Context:

• Six Flags Update: Activist investor Land & Buildings urges Six Flags to boost $5.7B in real estate value via OpCo/PropCo.
• Definition:
  • OpCo (Operating Company): Runs the enterprise—retail, staffing, operations.
  • PropCo (Property Company): Owns and manages the real estate, collecting rent from OpCo.
• Why Use It?
  • Segregates operations from real estate, optimizing each for investors.
  • PropCos attract income-focused investors (steady rent) and leverage for debt; OpCos appeal to equity markets.
  • “Splitting into an OpCo and a PropCo ... is one of those instances where it's actually much more intuitive than the complicated name would suggest.” — Ann (14:56)
• Risks:
  • Ownership overlaps can create conflicts.
  • Industry disruption (e.g., Toys “R” Us’s bankruptcy) can expose weaknesses, especially if OpCo gets overloaded with rent and debt.
  • Six Flags needs to balance value “unlocking” against operational risks.

Listener Question:

• Ann is asked if Costco would ever adopt an OpCo/PropCo structure: “Let’s keep watching that one.” (Ann, 19:05)

5. Quick Market Wrap & Headlines

(19:11 – 22:04)

Indexes:

• S&P 500: +0.25%
• Dow: +0.1%
• NASDAQ: +0.5%

Noteworthy Moves:

• CSX: +4% after CEO shakeup.
• Tilray Brands: +50%, Canopy Growth: +18% after Trump’s pro-CBD post.
• Etsy: +15% after OpenAI integrates Etsy shopping in ChatGPT.

Memorable Market Moment:

“Oh wow, there it comes. Direct to consumer retail now happening in the generative AI space. I guess it was just a matter of time.” — Ann (20:07)

6. Mega-Deal Spotlight: Electronic Arts’ Record Take-Private

(20:07 – 22:04)

Deal News:

• Electronic Arts to be taken private for $55B, the largest all-cash private equity buyout ever.
• Buyers include: Saudi Arabia’s PIF, Silver Lake, Affinity Partners.
• Timing ties to falling interest rate expectations and increased sovereign wealth fund/private equity partnerships.
• Ann teases a future deep dive: implications for gaming, take-private activity, and mega-deals.

7. Notable Quotes & Memorable Moments

• “Investors generally assume that shutdowns are temporary political standoffs.” — Ann (02:36)
• “Costco is an absolute beast... Its market cap over $400 billion, its share price up over 150% the last five years.” — Ann (04:36)
• “You can basically return anything at any time for any reason, no questions asked.” — John (09:20)
• “The poster child of AI... is less expensive to buy on a growth basis right now than Costco.” — Ann (13:11)
• “Splitting into an OpCo and a PropCo ... is one of those instances where it's actually much more intuitive than the complicated name would suggest.” — Ann (14:56)
• “Let’s keep watching that one.” — Ann, on the possibility of a Costco OpCo/PropCo (19:05)

Timestamps for Key Segments

• 00:01: Government shutdown context & market reaction
• 04:36: Costco earnings and membership model
• 11:00: Costco’s (high) valuation in context
• 14:46: OpCo/PropCo structure explained with Six Flags/Toys “R” Us examples
• 19:11: Market close & quick headlines
• 20:07: Electronic Arts mega take-private deal highlight

Tone

Engaging, analytical, and jargon-busting—Ann Berry brings clarity to complex topics while keeping the discussion grounded and lively, with John providing relatable consumer and investor perspectives woven throughout.

This summary distills the episode’s key market analysis, practical examples, and memorable banter, serving as an accessible resource even if you missed the show.