Wednesday was somewhat of a bloodbath on the ASX. But compared to other sectors, the S&P/ASX 200 Consumer Discretionary (ASX:XDJ) index showed some resilience, falling just 0.37%.
For context, the S&P/ASX 200 Index (ASX: XJO) fell nearly 2% yesterday.
This was a microcosm for what we have already seen so far in 2025.
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Consumer discretionary bounce back
The consumer discretionary sector is a subset of the retail industry. Retailers are businesses that sell products or services to end consumers.
Consumer discretionary items include luxury and high-end products and services like designer brand handbags, electronic devices, and even holidays.
This sector is influenced by the Reserve Bank of Australia's Cash Rate.
The RBA Cash Rate is the official interest rate set by the Reserve Bank of Australia (RBA). It represents the rate at which banks can borrow funds from the RBA on an overnight basis. The Cash Rate influences overall economic activity, inflation, and borrowing costs within Australia.
When the RBA raises the Cash Rate, borrowing becomes more expensive for consumers and businesses. This can lead to reduced spending on discretionary items like travel, entertainment, and luxury goods, negatively affecting consumer discretionary stocks.
But, when the cash rate falls like it has this year, it tends to have a positive effect by encouraging borrowing, investment, and spending. This is good news for consumer discretionary shares, as generally consumers have more disposable income and confidence to spend.
The RBA cash rate has been cut three times already in 2025.
Alongside these cuts, the ASX 200 consumer discretionary index has lifted – more than 13% year to date.
For context, the S&P/ASX 200 Index (ASX: XJO) has risen roughly 6% in that same period.
The next RBA Board meeting and Official Cash Rate announcement will be on the 30th September 2025, with many experts tipping a further cut.
This could mean more good news for consumer discretionary stocks.
2 stocks with upside
While it isn't as simple as cash rate cuts mean all consumer discretionary shares will rise, there are two that Broker Bell Potter currently has attractive price targets on.
The first is Accent Group Ltd (ASX: AX1).
It is a footwear and clothing retailer, wholesaler, and distributor. It owns and operates more than 800 retail stores across Australia and New Zealand.
Its share price has fallen more than 40% year to date and closed yesterday at $1.34.
However, Bell Potter has a "buy" recommendation and price target of $1.90 on this consumer discretionary share.
This indicates a 42.3% upside.
The second consumer discretionary stock with a positive outlook is Aristocrat Leisure Ltd (ASX: ALL).
The Australian gaming technology company has seen its share price remain flat YTD.
Bell Potter also has a buy recommendation and $79.00 price target on this stock.
From yesterday's closing price of $69.04, this indicates a 14.43% upside.
