S&P/ASX 200 Index (ASX: XJO) shares reliant on discretionary consumer spending have faced some stiff headwinds amid this year's fast-rising inflation and interest rates.
With wages growth lagging the increasing costs, consumer sentiment dropped 6.9% to one of the lowest levels recorded outside of a recession in November.
That's according to the Westpac Melbourne Institute Consumer Sentiment Index, put together by Westpac Banking Corp (ASX: WBC), which reported sentiment has been tracking near the lows witnessed during the COVID pandemic and the GFC.
You can see how that could pressure ASX 200 shares in the discretionary sector.
If consumers are feeling the pinch, they may opt to delay that new TV or sofa purchase. And they may choose to make their own meals rather than ordering a pizza delivery to their doorstep.
What did the latest consumer sentiment index show?
In potentially good news for ASX 200 discretionary shares, the Westpac report showed that, while still near recessionary levels, consumer sentiment "bounced" 3% in December.
While inflation and the state of the Aussie economy remained a key concern for households, sentiment lifted as most of the RBA's rate hikes are perceived to now be done with.
According to the report:
In the case of interest rates, there are even some signs that the news is becoming viewed as slightly less negative – consistent with the notion that the bulk of the interest rate tightening cycle is now behind us.
Job confidence also stabilised after plummeting 17% through October and November.
The report also notes that households do remain "deeply risk averse", prioritising bank deposits and reducing debts over investing in shares and buying property.
3 ASX 200 shares in the spotlight for 2023
Despite that risk aversion, a turnaround in the recent steep falls in consumer sentiment could bode well for a number of ASX 200 shares in 2023.
On the discretionary dining front, we have Domino's Pizza Enterprises Ltd (ASX: DMP).
The company holds exclusive master franchise rights and controls the Domino's network in Australia and a range of Asian and European nations.
The Domino's Pizza share price is down a painful 46% in 2022, giving the company a current market cap of $5.9 billion. At today's share price, Domino's pays a 2.4% trailing dividend yield, partly franked.
Should consumer sentiment continue to tick up in 2023, so too might the Domino's share price.
Another ASX 200 share that could benefit from increasing consumer sentiment is Harvey Norman Holdings Limited (ASX: HVN).
The Australia-based retailer sells a range of discretionary goods including electrical, computer, furniture, entertainment, and bedding.
The Harvey Norman share price is down 17% in 2022, giving the company a current market cap of $5.3 billion. At today's share price, Harvey Norman pays an 8.7% trailing dividend yield, fully franked.
The third ASX 200 share in the spotlight amid a turnaround in consumer sentiment as we head into 2023 is JB Hi-Fi Limited (ASX: JBH).
JB Hi-Fi is a specialty retailer of branded home entertainment products, with a focus on consumer electronics, electrical goods, and white goods.
The JB Hi-Fi share price is down 13% in 2022, giving the company a current market cap of $4.8 billion. At today's share price, JB Hi-Fi pays a 7.1% trailing dividend yield, fully franked.
