Why I should start buying ASX retail shares now instead of waiting for 2025
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Why I should start buying ASX retail shares now instead of waiting for 2025

Kaneb0

Why I should start buying ASX retail shares now instead of waiting for 2025

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i think ASX Retail Shares may be a good place to invest right now in the medium term. This depends on how much further their earnings could recover and increase over the next few years.

Currently RBA interest rate is at 4.35%, putting a strain on some parts of the economy, particularly younger Aussies with mortgages.

Of course, taking the heat out of the economy is exactly what the RBA is trying to do inflation is slowing down in Australia. IN SeptemberThe Reserve Bank of Australia said inflation “remained somewhat above the midpoint of the 2-3 percent target range”.

Pain for ASX retail shares

In its latest monthly rate decision (which kept the rate at 4.35%), the RBA noted the pain felt in discretionary spending:

Past declines in real disposable incomes and the ongoing impact of restrictive financial conditions continue to weigh on consumption, particularly discretionary consumption.

Still, the RBA board says it has one main objective:

Sustainable back inflation setting targets within a reasonable time frame is still the board’s top priority. This is consistent with the RBA’s mandate of price stability and full employment.

But I think it is likely that the RBA will decide to cut the Australian interest rate. My guess is that it could happen in the first half of 2025.

Rebound for discretionary spending?

I am considering the ASX break and retail stocks cyclical companies. It may be a good idea to consider them when conditions are challenging and stock prices are low.

Twelve months ago I called a number of ASX stocks a buy due to the tough conditions and the potential for a recovery. For example, since this article (published almost a year ago), the Adairs Ltd (ASX: ADH) share price has risen about 115%, and Nick Scali Limited (ASX: NCK) share price has risen more than 30%.

I don’t expect such strong returns in the next year. Previous results with (retail) shares are of course not a reliable indicator of future returns.

Although we have already seen strong gains from names such as Adairs, Nick Scali, Universal Store Holdings Ltd (ASX: UNI), Temple & Webster Group Ltd (ASX: TPW)and Wesfarmers Ltd (ASX: WES), it would be a mistake to think that the gains are finished.

For starters, the RBA hasn’t even cut rates yet, so there could be upside for both investor optimism and profit when that happens.

In addition, ASX retail stocks are always doing their best to increase profits with initiatives such as better product offerings, improved efficiency and increased online sales. Although the average Australian will not see an improvement in their budgets in FY25, the Australian population continues to grow, which means more potential customers for these companies.

With the RBA eventually cutting interest rates, I think ASX retail shares are poised to see a rise in profits. As I like to say, earnings growth should lead to stock price growth over time.

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