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00:00The margin pressure from Wal-Mart to Tom Keene. Your thoughts please. Well it's certainly a big indicator like you mentioned earlier. They employ a lot of people and as people have a tighter labor market labor markets and yet people are spending less. The question is can really companies pass along price. But keep in mind also John this is sort of what we're looking for right. We wanted to see demand cool off a bit to balance things to bring inflation more under control. So you know it's sort of that what we were hoping for but also a little concerning on how much this raises the possibility of recession. We're looking at the physics of a rocket launch right now. And they mentioned the maximum dynamic pressure. You did this ballet in your physics of undergraduate. Let's cut to the chase. Are we at the maximum dynamic pressure of inflation right now. We do think generally inflation measures have peaked but I think it's going to be you know using our chairman Paul ISE language here and it's going to be harder to get that soft ish landing. I think it's going to be harder to bring down that figure right. People are hoping that when we got this sort of 8 percent headline number that it could come right back down. But we're seeing that is going to take several more quarters. But what's so important here. Let's go astronomical again aeronautical again if we can. And the acceleration function is a squared function. Guessing time on the x axis is the hardest thing to do in this racket. What are the determinants you're going to use to guess when inflation rolls over. I think one is a dynamic between really how does that good spending go versus the service spending. I think also to see what it's a dynamic between when you have a tight labor market and companies are able to have to be competitive and raise wages so that consumers actually have more to spend. But how will that offset with actually companies being able to pass along price because consumers have more money to spend. And then a third component. I think that we're underappreciated here is right now household wealth is very heavily tied to the equity markets. I think we saw historical amount of nearly a quarter of household wealth is tied to equity. So what equities are down like this. It can weigh on consumer sentiment if we stayed out of these levels. You could see sort of that souring sentiment really start bleeding into consumer spending. These are the indicators we're watching but we're not quite convinced yet that consumer is really decelerating. Can you elaborate what you said which is that this particular series of reports is a little concerning with how much it raises the risk of recession. How so. Well when you talk about what is the possibility of recession for us it's still a tail probability. It is not our base case and we still put the possibility of a recession by the end of 2023 at around 30 percent. So that's actually quite low compared to where some people are on the street. But the main driver and something that we've all focused on and relied on to pull us out of the recession post pandemic and continue to drive our economy has been the U.S. consumer. The strength of spending and that willingness to spend not just on goods but as Colbert was relaxed is lockdowns relax on experiences and get out there and travel and put that money to work and circulate through the economy. So if that driver starts to cool down then becomes the concern. Our margins really coming under pressure enough that earnings growth will turn negative that GDP growth could turn negative. Again not our base case Lisa but the tail risks could be getting bigger here. So there have been a number of strategists that have come on and said they still like consumer discretionary because there has been such a wave of spending and because of the strength in the consumer. Would you back away from that kind of idea based on what we're seeing right now in these numbers. I wouldn't particularly back away but perhaps it wouldn't be our number one call here. And just to keep in mind you know some part of that we've been actually pretty negative on the retailing space to begin with but we're still positive on the sources where you can leave your spending. You can have those re-opening trade the travel time industries. On the other hand what we've been looking at very carefully especially with the more tightening monetary policy here has been the growth style. You've seen it beaten down so badly this year and you've seen that we think we're starting to see the bottom for the gross style. So we're starting to warm up to it again. And when we look at the market adjustment year it is off central banks. It is off the Fed. I'm focused on the non linearity of their Fed decisions they have to make. It's frankly true for ECB is well Luke equity market performance into the massive challenges the Fed has after the July 27 meeting. You know you bring up a great point Tom is how our equity is going to handle it. If the Fed continues to tighten and we start to really see that GDP growth slow for us we do expect GDP to come down. But we also still think that unemployment rates could come even lower. And then that kind of environment again where jobs and wage growth is aggressive and wages are going higher. We still think a possibility that equities can go higher from here. Our price target remains forty seven to 15. And there's a reason for that. We think that there could be a change in the leadership here. Again if growth has bottomed and we start getting a better handle on inflation that's going to bode much better for these growth sectors. And they are still a large part of S & P 500.

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Will Be Harder to Get Soft Landing: Han

Wells Fargo Securities Equity Strategist Anna Han discusses Walmart's profit and margin miss and whether inflation has peaked. She speaks to Bloomberg's Jonathan Ferro, Tom Keene and Lisa Abramowicz on "Bloomberg Surveillance." (Source: Bloomberg)

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