'Glimmers of hope': Why the latest Westpac consumer sentiment could spell good news for ASX shares

There could be a silver lining for the stock market.

A young couple sits at their kitchen table looking at documents with a laptop open in front of them while they consider the state of their investments.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The ASX stock market has seen its share of pain over the last two years due to elevated inflation and higher interest rates. Households have been feeling pessimistic, but the latest Westpac Banking Corp (ASX: WBC) consumer sentiment survey may mean there are better times ahead.

Aussie household mood improves

The Westpac-Melbourne Institute Consumer Sentiment Index rose 2.9% to 82 in October, up from 79.7 in September.

Why are households feeling more positive even though interest rates remain high? Westpac suggested that the extended RBA pause on rate hikes might be helping improve the picture for households with a mortgage, with "an expectation that cost-of-living pressures will ease" in 2024.

The increases in the minimum wage and award rates, as well as the adjustment to welfare rates and improved interest returns for retirees are helping cushion against the cost increases. This can mean more money to spend at the tills of ASX shares.

Westpac also noted that the most promising shift was around an assessment of 'time to buy a major household item', which saw an improvement of 7.6% in October. But, it noted there have been false starts before, including the 9.5% rise in April that unwound in the months that followed.

Still feeling pessimistic

While October represented an improvement from September, the reading of 82 was still "very low" and in "deeply pessimistic territory". There has been a consistent decline in per-person spending since late last year.

Westpac noted, "while there are some faint glimmers of hope around family finances and the outlook for jobs, these are being overshadowed by still high inflation and renewed rate rise concerns."

Consumers are wary of the potential for more rises in the months ahead, with around two-thirds of respondents expecting another hike in the next 12 months.

Why this could be good news for ASX shares

ASX share prices are meant to reflect the outlook for businesses, with a focus on the medium-term, not just what's going to happen in the next few months.

If investors can see that the worst is over, or there's an end date in sight, the market may decide that share prices have fallen far enough and start a recovery.

If enough households are worried about an economic downturn and choose to limit their spending, that could in fact cause a negative spiral and act as a self-fulfilling prophecy.

Plenty of ASX retail shares have suffered share price declines over the past couple of years such as Wesfarmers Ltd (ASX: WES), Nick Scali Limited (ASX: NCK), Adairs Ltd (ASX: ADH), Universal Store Holdings Ltd (ASX: UNI) and Premier Investments Limited (ASX: PMV). This could mean that conditions may improve.

Time will tell if consumers' confidence grows even further, or if it's another false start.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Adairs and Wesfarmers. The Motley Fool Australia has positions in and has recommended Adairs and Wesfarmers. The Motley Fool Australia has recommended Premier Investments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Retail Shares

Photo of two women shopping.
Retail Shares

ASX retail shares stronger following Black Friday and Cyber Monday sales

Official retail data released today indicates shoppers delayed their spending in October ahead of the sales.

Read more »

A woman sits on sofa pondering a question.

I'm close to buying this beaten-up ASX 300 share next

Here's a company I think is well worth considering.

Read more »

A young boy wearing a hat, sunnies and striped singlet looks fierce and flexes his arm in victory.
Small Cap Shares

Why this ASX small-cap stock is an 'undervalued growth opportunity' for 2024: fundie

The ASX small-cap share has managed to increase profits and earnings despite difficult market conditions.

Read more »

A young woman holding her phone smiles broadly and looks excited, after receiving good news.
Retail Shares

Guess which ASX All Ords stock has rocketed 29% in just 3 days

The ASX All Ords stock has enjoyed a big turnaround this week.

Read more »

A woman wearing jewellery shrugs
Retail Shares

Lovisa share price falls despite 17% sales growth, imminent China expansion

Total sales growth and global expansion continue for this retailer.

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Retail Shares

Can Wesfarmers shares reach $55 by Christmas?

Are shareholders going to get an early Christmas present?

Read more »

A woman looks at a tablet device while in the aisles of a hardware style store amid stacked boxes on shelves representing Bunnings and the Wesfarmers share price
Retail Shares

What is the 2024 outlook for Wesfarmers shares?

Can the company deliver another strong result?

Read more »

Three happy young women wearing headphones dance to music.
Cheap Shares

Looking for cheap ASX shares? Here's a pick from Scott Phillips (despite the current recession risk!)

Scott Phillips discusses what he reckons is a cheap ASX share right now...

Read more »