The Westpac-Melbourne Institute Index of Consumer Sentiment fell 5.2% in September to 84.4.
Any reading below 100 means pessimists outnumber optimists.
However, some ASX shares actually do better when households run out of confidence.
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Why consumer sentiment is important for ASX shares
Assessments of family finances dropped 9.2%, and among homeowners the fall reached 13%.
Nearly two-thirds of consumers now expect mortgage rates to rise within twelve months.
The report stated the following of the cause:
The fall takes sentiment back towards the deeply pessimistic levels seen earlier in the year. Both fuel prices and interest rates again look to be driving the move.
Consumer discretionary shares were the worst sector on the ASX on Tuesday, falling 1.88%.
Trouble right? Well, the businesses that sell things households cannot easily cancel are in a different position entirely.
Woolworths sells everyday fundamentals
Woolworths Group Ltd (ASX: WOW) is the most obvious beneficiary on the market.
People trade down within a supermarket, but they do not stop buying groceries.
FY26 showed this phenomenon in action.
Group sales rose 3.6% to $71.54 billion and earnings before interest and tax before significant items climbed 12.7% to $3.11 billion.
Net profit before significant items jumped 15.4% to $1.60 billion.
The Australian Food business lifted sales 4.6% and EBIT 8.5%, while BIG W returned to profit after a loss.
Group eCommerce sales grew 15.9% to $10.6 billion and the final fully franked dividend rose 15.6% to 52 cents.
Chief executive Amanda Bardwell was clear about the challenges facing the company:
Looking ahead, while we expect the challenging economic environment to continue with household budgets remaining under pressure, our strategy to deliver low prices and the best range and convenience gives us confidence we can be first choice for customers while delivering for our team and shareholders in the year ahead.
Telstra sells the second last thing to be cut
Telstra Group Ltd (ASX: TLS) is on the same side of the coin.
That is because nobody cancels their mobile plan because the Reserve Bank raised rates.
FY26 revenue actually fell 0.8% to $22.94 billion, which sounds unimpressive until you look further down.
Underlying net profit after tax rose 4.9% to $2.5 billion and cash earnings per share climbed 14% to 25.5 cents.
Underlying EBITDA after leases increased 4% to $8.3 billion, and management guided FY27 to between $8.5 billion and $8.8 billion.
Mobile income grew 3% to $11.4 billion.
The dividend is the attraction here.
Telstra lifted its full-year payout 10.5% to 21 cents and announced a buyback of up to $1 billion.
At $4.79 that is a yield of about 4.4%, or roughly 6% once franking credits are counted.
Foolish takeaway
Defensive ASX shares are not exciting, and they are not supposed to be.
But what they do is keep earning while the discretionary end of the market repriced 1.88% lower in a single session.
I find Telstra the better value of the two today, purely because Woolworths has already been rerated.
The mistake would be buying either one expecting them to rise when sentiment recovers.
