Despite the S&P 500 climbing and routinely breaking its all-time highs recently, the U.S. consumer sentiment survey just printed 44.8 in May, the lowest reading in its history, undercutting even the gloom of the mid-2022 inflation scare. When shoppers feel this battered, they typically trim their purchases of discretionary goods first, and the textbook response for investors is to hunt the companies that are about to feel that squeeze.

The idea is that the ongoing consumer despair will lead to discounts on certain consumer-facing stocks soon, which, for those who pick the right assets, will then (hopefully) lead to gains when the mood inevitably lifts. The trouble is that the bargain bin is presently much emptier than that theory predicts, which is making many investors concerned that their new investments will be placed in highly overvalued assets that might never recover to their current price.

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So should investors be worried about how gloomy consumers are feeling right now?

Where’s the money going?

When household budgets tighten because people are either expecting or experiencing hard economic times, people tend to redirect their spending rather than halt it altogether.

That meshes with census data, which shows headline retail sales still climbing, even as discretionary and big-ticket categories soften. Be on the lookout for buying opportunities over the next year or so, as you’ll probably see some serious earnings softness leading to deep discounts on shares if consumer sentiment remains so sour.

The other side of the coin is that the most obvious winners of this era of discontent are the warehouse and discount giants, Walmart, (NASDAQ: WMT) Costco Wholesale, (NASDAQ: COST) where a dollar can be stretched the furthest.

Of course, much to the chagrin of investors, the market figured this out years ago. Walmart’s trailing price-to-earnings (P/E) ratio is 42, and Costco’s is 49. By that measure, both rank as being fairly expensive for recession-resistant retailers.

Nonetheless, even if the market experiences a sharp downturn, those names are more likely than not to bounce back, even if consumers remain unhappy.

The case for staying calm

The best move for investors right now is to stay patient and to be highly selective about which stocks to buy and when. The most important trigger to be watching is actual spending habits, not feelings.