Spending intentions hit a record high. Sentiment just crashed. Here are the ASX winners and losers.

The Australian consumer is sending a confusing signal.

Spending intentions have just hit a record high. On the surface, that should be positive for consumer-facing stocks. Stronger spending typically translates into stronger revenues, more stable earnings, and a supportive backdrop for discretionary sectors.

But at the same time, sentiment is deteriorating sharply.

The latest Westpac-Melbourne Institute survey shows consumer confidence falling 12.5% to 80.1 in April - the biggest monthly decline since COVID - as fuel prices and rate expectations surge simultaneously. At 80, the index is back near historical lows, with near-term expectations for family finances and the economy deteriorating to levels last seen during the 2022-24 cost-of-living crisis.

That divergence is the story with headline strength masking a more important shift beneath the surface, one that is already reshaping earnings expectations and separating winners from losers across the ASX. This is not about whether consumers are spending. It is about where that spending is going and why that distinction matters far more for investors.

The number misleading the market

UBS's latest consumer survey shows Australians are planning to spend more over the next 12 months, with strength across every income group. On the surface, that sounds overwhelmingly positive. But the headline number is increasingly misleading.

The lift in spending is being driven mainly by essentials:

• Groceries
• Fuel
• Utilities
• Healthcare

In other words, the stuff households can’t cut.

Once you strip that out, the picture changes quickly. The parts of the economy that actually drive earnings for listed companies - retail, travel, dining, big-ticket spending - are softening.

The Westpac-MI data makes the scale of the pressure clear. Average pump prices hit $2.40 per litre in the first week of April, up 37 cents from March and 77 cents from early February. Westpac Economics describes this as the biggest fuel price rise in the history of their survey, comparable in percentage terms to the 50% annual rise recorded during the 1979 oil crisis. 

The willingness to make major purchases has collapsed in response, with the Westpac-MI time to buy a major item sub-index dropping 15% to 83.3, approaching the very weak 75-80 range seen at the height of the 2022-24 inflation fight.

That is the disconnect. The consumer is holding up in aggregate, but weakening precisely where it matters most for markets. 

When sentiment falls, discretionary stocks have historically followed. The current sentiment reading of 80.1 puts the index at levels that have preceded significant XDJ weakness in prior cycles.

The rotation happening beneath the surface

Household budgets are being reallocated in real time.

Fuel has become one of the fastest-growing expense categories, while grocery and utility bills remain elevated. These costs are absorbing a larger share of income, leaving less available for discretionary purchases.

At the same time, forward spending intentions are softening across:

• International travel
• Entertainment
• Home improvement
• Big-ticket retail

It's a broad reprioritisation that UBS survey data shows is accelerating, not stabilising. That’s where the risk sits - when spending holds up, but earnings don’t.

Why it’s happening: expectations are driving behaviour

The driver here is not just realised inflation, it is expectations.

A growing majority of consumers, around 80% of respondents, now expect interest rates to rise further over the next year, up sharply from roughly 40% just six months ago, according to UBS survey data.

The Westpac-MI Mortgage Rate Expectations Index independently confirms this, rising to 177.2 in April - a return to recent cycle highs - with 40% of those with a view expecting a rise of more than one percentage point. Westpac Economics is forecasting another 25 basis point RBA hike at the May board meeting, with further moves likely through the second half of 2026.

Households anticipating higher mortgage costs pull back on discretionary spending before those costs actually rise. Big purchases are delayed, travel is reconsidered, and non-essential spending becomes more selective. By the time the behaviour shows up in earnings, the decision has already been made.

Job loss fears are compounding the picture. The Westpac-MI Unemployment Expectations Index jumped 9.7% to 147.8 in April - the worst read since August 2020 - with the sharpest rises concentrated in construction (up 22%) and hospitality (up 19%).

Both sectors have high exposure to energy costs and cyclical swings in activity, and the deterioration in employment confidence within these industries is a leading indicator for the spending behaviour of workers within them.

The stock implications: clear winners and losers

For investors, this rotation has a direct and specific read-through to stock selection. The UBS equity strategy team has moved underweight on Australian Consumer Discretionary as a result, a positioning call that reflects the view that current earnings forecasts for the sector have not yet absorbed the scale of this spending shift.

The winners are in essentials and value.

According to the UBS consumer survey and accompanying sector analysis, elevated spending on groceries is a clear tailwind for supermarkets, with both Woolworths (ASX: WOW) and Coles (ASX: COL) benefiting from the structural shift in household budget allocation.

But within the duopoly, the competitive dynamic is diverging in a way that matters for stock selection. The UBS consumer survey shows Woolworths leading in online grocery penetration at 35% consumer reach compared to Coles at 25%, and Coles is losing ground quarter-on-quarter. In a channel growing as a share of total grocery spending, that gap is widening at exactly the wrong time for Coles.

Within discretionary, UBS highlights that resilience is concentrated in value-oriented segments where consumers trade down rather than exit spending altogether. 

Stocks such as JB Hi-Fi (ASX: JBH) and Lovisa (ASX: LOV) fit this profile, where consumers are more likely to trade down rather than exit spending altogether.

Quick-service dining names like Guzman y Gomez (ASX: GYG) similarly show more stable demand relative to premium dining alternatives, though at 17% consumer penetration, same-store sales comparisons in FY26 will be tougher after a strong prior year.

The losers are in big-ticket and housing-linked categories.

UBS strategy is more cautious on areas exposed to:

• Housing and home improvement
• Large discretionary purchases
• Travel and experience-led spending

These categories are most sensitive to rising rates and fuel costs, and the survey data shows the clearest softening in forward demand here.

The Westpac-MI house price expectations index fell a sharp 10.2% to 153.5 in April, and the time to buy a dwelling index remains more than 33 points below its long-run average - a combination that signals weaker housing turnover and the downstream spending on furniture, appliances and renovation that follows property transactions.

Regional Australia deserves specific attention. Westpac-MI data shows sentiment among regional consumers fell a sharper 16% to just 73 in April - well below the national figure - reflecting higher fuel cost exposure as a share of income and fewer transport alternatives. Retailers and service businesses with above-average regional footprints face a more acute demand headwind than the national numbers alone suggest.

The key point is that this is not a broad-based consumer slowdown. It is a reallocation of spending, and the dispersion in outcomes across stocks is likely to widen as the macro pressure intensifies.

The real risk: earnings, not spending

The key risk for investors is not a collapse in consumer spending - it is a misreading of where that spending is going, and how quickly the category mix shift translates into revenue pressure at the company level.

The sequence matters. Sentiment falls first. Spending composition shifts second. Revenue misses emerge third. Downgrades follow. The UBS and Westpac-MI data suggest the first two steps are already well advanced. 

For Consumer Discretionary stocks trading on forward earnings that assume a more benign consumer environment, the downgrade risk is front-loaded - it arrives before the macro picture resolves, not after.

At the aggregate level, consumption may hold up. But at the company level, shifts in category mix can quickly translate into revenue pressure, margin compression and increased competition for a shrinking pool of discretionary wallet share. The market has largely focused on the resilience of the headline consumer number. The bigger risk sits beneath it.

With Westpac Economics forecasting further rate hikes through the remainder of 2026 and fuel prices showing no near-term relief while the Strait of Hormuz remains effectively closed, the near-term conditions for a discretionary recovery still look challenging. The downgrade cycle is the part of this story that is not yet fully priced.

In this market, it is not about whether consumers spend. It is about who captures that spending, and the data is narrowing that list quickly.