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MARKET SNAP: At 6:10 a.m. ET, S&P 500 futures up 0.1%. Treasury yields climb, hitting a two-year high. Nymex down 40.27 at $107.02. Gold 0.2% higher at $1,376.30. In Europe, FTSE 100 down 0.1%, DAX down 0.1% and CAC 40 down 0.5%. In Asia, Nikkei 225 up 0.8% and Hang Seng down 0.2%.

WATCH FOR:  No major economic data on tap. Bob Evans Farms and Urban Outfitters are among a small group of companies scheduled to report quarterly results.

THE BREAKFAST BRIEFING

One of the most important questions facing investors: How will a reduction in Fed stimulus and rising interest rates impact the rallying stock market in the second half of the year?

Opinions on the subject are divided, to say the least.

Some investors say that while the major stock indexes have been a bit choppier over the past few months, they still hover near record territory despite the pickup in interest rates. That suggests stocks over a longer term should able to withstand higher rates. Others, however, worry that the stock selloff in May and June proved to be a minor prelude of what’s to come when the Fed actually starts trimming its bond-buying programs.

Peter Boockvar, managing director at The Lindsey Group LLC, says stock investors have been willing to overlook corporate and economic concerns as long as Fed stimulus which the market has dubbed quantitative easing, or QE is in place.

“The likelihood of a change in Fed policy has exposed the underlying earnings slowdown that has been ignored all year due to the QE beer goggles that market participants have been wearing up until recently,” Mr. Boockvar told clients on Friday.

“We have had a market where market participants have been willing to pay a higher and higher price for slowing earnings and a bubble in profit margins,” he added. “Now that the Fed is about to back away, the tide is going out.”

The S&P 500 has fallen 3.2% from record highs achieved earlier this month. The decline over the past two weeks has coincided with a growing drumbeat of comments from Fed officials who’ve indicated the door is open for the central bank to start pulling back on its accommodative policies as early as next month.

Yet despite the decline, the S&P 500 still remains up 16% this year. The rally’s persistence even amid the volatility that ensued in May when Fed Chairman Ben Bernanke hinted that the Fed would eventually purchase less bonds is why some investors are staying optimistic.

“Increases in yields have not been the boogeyman so many make them out to be,” said Dan Greenhaus, chief global strategist at BTIG.

For instance, the benchmark 10-year Treasury yield was as low as 1.63% in early May. On Friday, the 10-year jumped above 2.8%, and this morning it was heading closer to 2.9% in European trading, which amounts to a major move in the bond market in a little more than three months. And yet over the same timeframe, the S&P 500 is still up 2.6%.

“Ultimately, rates will be too high for stocks,” Mr. Greenhaus told clients last week. “There is a level that’s deleterious. But we don’t think we’re there yet and outside of normal rate-adjustment turbulence in stock prices, the argument for higher stock prices is every bit as valid today as it was yesterday.”

Investors will get another chance to assess the situation on Wednesday, as the minutes from the Fed’s latest policy meeting are scheduled for release. At the previous meeting, the Fed pointed to higher mortgage rates, modest growth and low inflation as factors it was closely watching to determine what to do next.

The minutes will offer more detail about what exactly Fed officials are thinking and planning. They should also give investors more context about how to eventually navigate through an environment of less Fed stimulus, rising interest rates and record-high stock prices.

Morning MoneyBeat Daily Factoid. On this day in 2004, Google Inc. went public through an initial public offering priced at $85. The stock closed Friday at $856.91 and earlier this year traded above $900.

-Steven Russolillo

STOCKS TO WATCH

J.P. Morgan is likely to be in the spotlight on Monday following reports that the bank is being investigated for its hiring practices in China. The probe was briefly mentioned by J.P. Morgan in its 10-Q filing dated Aug. 7.

“A request from the SEC Division of Enforcement seeking information and documents relating to, among other matters, the Firm’s employment of certain former employees in Hong Kong and its business relationships with certain clients,” said the bank.

On the earnings front, Urban Outfitters is expected to report second-quarter earnings of 48 cents a share, according to a consensus survey by FactSet.

“Our channel checks indicate strength across each of the company’s three core brands despite the challenging promotional and macroeconomic environment,” Matthew McClintock, an analyst at Barclays, wrote in a report.

Also, Bob Evans Farms is projected to post fiscal first-quarter earnings of 56 cents a share. “BOBE represents an under-followed, buy idea as the model transforms into a platform for earnings upside and capex reduction next fiscal year,” Brian Bittner at Oppenheimer wrote in a note.

MUST READS (LINKS)

Abreast of the Market: Stocks Break From Herd . Shares are moving less in tandem with the overall market than at any time since the financial crisis, by some measures. That suggests that investors are zeroing in on the prospects for individual companies rather than making wide bets on stocks as a whole.

Next Fed Chiefs Test: Quelling Dissent . The Fed could become more divided when Bernanke, a master of consensus-building, leaves. That has important implications for the central bank, markets and economy.

Ahead of the Tape: Potential Fed Action Warrants Caution on Financials . With the Federal Reserve possibly slowing its rate of bond buying this fall, there is now reason for caution on financial stocks.

American-US Airways Deal Left in Lurch . The governments unexpected bid to block the American Airlines-US Airways merger puts the carriers in an awkward position. Some US Airways executives already have moved to the Dallas area, home of the new airline.

J.P. Morgans China Hiring Investigated . An investigation by U.S. regulators into hiring practices by J.P. Morgan Chase in Hong Kong touches on a common issue for many big investment banks: the hiring of children of senior Chinese officials.

Beats By Dre Looks to Drop HTC . Headphones maker is looking to raise fresh funds and is in talks with an investor for debt financing.

Heard on the Street: A Dellish Experience for H-P . Michael Dell is probably having a grand old time taking his company in a new direction. Before long, Hewlett-Packard chief Meg Whitman may wish that she, too, could take the company she runs private.