The latest predictions from experts anticipate three further interest rate cuts from the RBA in 2025. These RBA decisions impact consumer discretionary shares.
When interest rates fall, consumers generally have more disposable income and access to cheaper credit, often boosting spending on discretionary items and lifting the performance of related shares.
In simple terms, if your mortgage repayments go down by a couple hundred dollars, you might be more inclined to spend on luxuries like electronics, jewellery, a holiday or upgrades for your car.
Investor sentiment also plays a role. As lower rates typically make equities more attractive compared to fixed-income investments, driving money into growth-oriented sectors like consumer discretionary.
For investors looking to anticipate these rate cuts with timely investments, here are some consumer discretionary shares worth watching.
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Amotiv Ltd (ASX: AOV)
Amotiv engages in the manufacture, distribution, and sale of automotive products, pumps, pool and spa systems, and water pressure systems.
It also focuses on manufacturing and marketing of towing, trailering, functional accessories and associated products for the automotive aftermarket.
It is behind brands such as Narva, Ryco, and Kaymar.
These consumer discretionary shares are down 20.21% over the last year, however a low interest rate environment could help the company turnaround.
Broker Bell Potter's price target indicates the stock may have fallen below fair value.
At the time of writing, shares are trading at $8.29 each.
The broker has a price target of $11.00 along with a "buy" recommendation, indicating an upside of 32.68%.
Lower interest rates can help AOV shares by supporting consumer demand for non-essential automotive accessories.
Furthermore, lower rates generally reduce borrowing costs for businesses. When companies carry debt, it can benefit from lower interest expenses.
This can improve its net profit margins and cash flow. This may enhance earnings per share (EPS), which can lift investor sentiment and share price.
Adairs Ltd (ASX: ADH)
Adairs is a specialty retailer focused on home furnishings, furniture, and décor. Its retail brands include Adairs, Adairs Kids, and Urban Home Republic.
This consumer discretionary company has experienced significant volatility over the past year, however remains up 10% over the period.
Bell Potter also has a favourable view on the current price of these consumer discretionary shares.
At the time of writing shares are trading at $2.09.
It currently has an "overweight" recommendation and price target of $2.35.
This indicates an upside of 12.44%.
Speaking on the upcoming RBA rate decisions in a report on Tuesday, the broker said future rate cuts can positively impact the retail sector:
While the second cash rate cut in May-25 for Australia should somewhat assist trends through to the rest of CY25, we see a more meaningful benefit from a third cut anticipated in Jul-25. We view good potential for retail sales trends to shift meaningfully in Sep-25 supported by the Jul/Aug cash rate cuts and easier comps into the end of 3QCY25.
