How supply issues could influence S&P 500?

Stock indexes remain near new record highs as earnings for most companies continue topping estimates.

At the same time, many businesses continue to announce plans for further price increases, with most facing higher cost pressures. It will be interesting to see how or when the U.S. consumer starts to pull back.

Upcoming price increases

UPS yesterday was the latest to announce upcoming price increases, joining companies like Kimberley-Clark, Procter & Gamble, Nestlé, and Chipotle, to name just a few that are attempting to offset higher input costs. These moves reinforce the bear's argument that inflation will prove to be longer-lasting than the Federal Reserve's stance that the wave of higher prices is only "transitory."

Judging from regional Federal Reserve Manufacturing Surveys that have been updated so far, challenges related to supply chain dislocations and labor shortages continue to contribute to the inflationary environment. Meaning manufacturers are still struggling to expand output amid raw material shortages, higher input costs, transportation bottlenecks, and a lack of qualified workers. There have been minor improvements with the pace of cost increases easing a bit and respondent outlooks turning more positive.

It will take more than one month of slightly better data for investors to believe the worst of the supply chain mess is behind us, though.

Data to watch today

Economic data today includes advanced reads on Retail and Wholesale Inventories for October. Bulls are hoping inventories have managed to climb from depressed levels brought on by supply chain challenges, especially as we head into the holiday shopping season. Remember, if companies don't have the products to sell it will be tough to meet earnings and growth forecasts.

Durable Goods Orders for September are also due today. Oil traders today are anxious to see the Energy Information Administration's weekly oil inventory report after both Brent and WTI oil futures yesterday closed at their highest levels since 2014 when oil was trading close to $100 a barrel.

Investors this morning will also be digesting the Bank of Canada's latest policy decision. Insiders are expecting the central bank to raise its inflation forecast and further cut its bond purchases. Another reduction will mark the fourth time in the past year that the Bank of Canada has "tapered" its asset purchases, something most other central banks have not yet begun. The Bank of Canada could also announce when it intends to begin interest rate hikes, with some analysts anticipating liftoff as soon as March due to rising inflation.

Such a move could increase fears that other global central banks, including the U.S. Fed, will feel pressured to act more aggressively to combat inflation. Meaning analysts could begin moving up timelines for when the Fed might end asset purchases and begin rate hikes, something that could weigh on bullish outlooks.

Earnings

It's another busy day for earnings with highlights including BASF, Boeing, Bristol Myers Squibb, CME Group, Coca-Cola, eBay, General Motors, Hilton Worldwide, Kraft Heinz, McDonald's, Norfolk Southern, O'Reilly Automotive, Thermo Fisher, and Twilio. Alphabet (Google) and Microsoft announced after the market is closed yesterday with both blowing expectations out of the water. Notably, Google's advertising revenue, which rose +43%, didn't appear to take any hits from changes made to Apple's privacy policies, something cited by both Facebook and Snap. Both Google and Microsoft also saw continued robust growth in their cloud divisions with revenue climbing +45% and +31% respectively. Apple and Amazon will wrap up the last of the so-called FAAMG stock earnings when they report tomorrow. Stay tuned...

Big Tech Pushing S&P 500... But How Does it End? Amazon, Apple, Facebook, Google, Microsoft, and Tesla now make up 24% of the S&P 500. It seems like how they go so goes the overall stock market. Keep in mind, "Big Tech" now makes up about 40% of the entire S&P 500. If the trade finds Big Tech to be overvalued or in some type of bubble the market could take a sizable hit as it deflates.