Aussie consumer confidence crashed but history says it's time to shop for retail stocks

The Westpac-Melbourne Institute Consumer Sentiment Index fell 12.5% to 80.1 in April from 91.6 in March, resulting in the largest monthly decline since the onset of the pandemic.

But the stock market is not the real economy, and equities often act as a forward-looking pricing mechanism that bottoms well before economic conditions (just look at the S&P 500 and Nasdaq closing at all-time highs on Wednesday). With that in mind, could now be an opportune time to buy some retail stocks that have sold off aggressively in recent months?

April consumer sentiment highlights

• Average pump prices hit $2.40/litre in the first week of April, up 37 cents from the March survey and 77 cents from early February, the biggest rise in the survey's history
• The 'family finances vs a year ago' sub-index plunged 16.7% to 66.8, an extremely weak read approaching the lows seen during the 2022-24 inflation fight
• The 'time to buy a major item' sub-index dropped 15% to 83.3, but still slightly above the very weak 75-80 range seen in 2022-24
• Unemployment expectations have deteriorated sharply, with the Unemployment Expectations Index jumping 9.7% to 147.8, the worst reading since August 2020, with construction (+22% to 152) and hospitality (+19% to 149) the most affected sectors
• Mortgage rate expectations have returned to cycle highs, with over 80% of consumers expecting variable rates to rise over the next 12 months

Be greedy when consumers are fearful?

At a glance, weakness in the Discretionary sector coincides with a sharp decline in consumer sentiment, and such low readings historically set up strong forward returns, though obviously not a guarantee.

This holds across the entire timeline, including pre-GFC, the expansion years and post-pandemic – sentiment never cracks even 1% of explanatory power.

Where sentiment does earn its keep is as a contrarian indicator at extreme levels. When sentiment hits the lowest quintile (76-92) has historically been followed by an average 12-month forward return of 15%. Meanwhile, when sentiment hits the highest quintile (111-124), 12-month forward returns sit at negative 6%.

Taking a closer look

The tables below observe notable troughs for the Consumer Sentiment Index and forward returns for the S&P/ASX 200 Discretionary Index.

While deep troughs produce strong forward 12-month returns, the short term is rather volatile and positive only 50% of the time. There are also plenty of traps, such as July 2008, when stocks fell for another seven months.

The bottom line

April's consumer sentiment print of 80.1 places us firmly in the lowest quintile historically, which is the same territory that has preceded average 12-month forward returns of 15% for discretionary stocks.

That said, the downside also has plenty of ammunition, including an ongoing fuel crisis and higher consumer prices, the risk of a prolonged Middle East conflict and further RBA hikes on the horizon.

But markets rarely wait for the all-clear. JB Hi-Fi serves as a clear example, where the stock began rallying in late 2023, well before the fundamentals improved. The company reported a 20% fall in net profit at its 1H24 result on 12 February 2024, but the stock rallied 7.1% as the numbers were far less than feared. So it's much less about face value outcomes and more about what's already priced in.

This article was first published on Market Index on Thursday, 16 April 2026.