Interest rate rises hurt almost all ASX shares, at least in theory. With rates rising at their sharpest trajectory in modern history between 2021 and 2023, this was certainly felt on the share market. But, now that interest rates are being cut back down, should investors flock to consumer discretionary shares?
As we just noted, interest rate cuts benefit almost every stock on our share market. This is thanks to a potent combination of lower borrowing costs across the economy, an increase in consumer disposable income, and the reduced appeal of stock market investing alternatives like cash and government bonds.
Consumer discretionary shares benefit from all three factors, but particularly the second. As the name suggests, consumer discretionary shares sell goods and services that we tend to want to buy more of when our incomes are rising. As opposed to consumer staples like food and household essentials, demand for consumer discretionary goods and services tends to rise and fall alongside the health of the broader economy.
Australians have now enjoyed two interest rate cuts in 2025 (with more potentially on the way). Consequently, many consumers might be feeling that, after a rough couple of years of cost-of-living pressures, it might finally be the right time to buy that new TV, refrigerator, or car.
As such, it's not difficult to make the case that consumer discretionary stocks are, thanks to rate cuts, back in favour today after a rough few years. This might be why the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) has risen 19.14% over the past 12 months. To put that in context, the broader S&P/ASX 200 Index (ASX: XJO) is up around 9.1% over the same period.
But which consumer discretionary stocks might benefit from this rate-cut trend the most?
Rate cuts: Which ASX 200 consumer discretionary shares are rated as buys today?
Luckily, one prominent ASX broker named their best post-rate cut picks from the consumer discretionary sector late last month. As my Fool colleague covered at the time, brokers at Macquarie have recently issued buy ratings on electronics and appliances chain JB Hi-Fi Ltd (ASX: JBH), furniture and electronics purveyor Harvey Norman Holdings Ltd (ASX: HVN), and discount jewellery retailer Lovisa Holdings Ltd (ASX: LOV).
Macquarie gave JB shares a 12-month share price target of $112 each, not too far from the company's current share price of $109.90 (at the time of writing).
Meanwhile, Macquarie has given Harvey Norman stock a price target of $5.50 a share. Again, that's not too far off the current $5.36 share price.
When it comes to Lovisa, the broker is pencilling in a little more upside. Lovisa shares are presently asking $28.84 each. But Macquaire reckons they can go as high as $33.40 (a potential gain of 15.8%).
