Markets open flat but stocks continue to rotate

CNBC's Bob Pisani reports on the market action after the opening bell. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi

The S&P 500 set another record high on Monday as the market continued to rise in the final days of August.

The broad market index gained 0.5% to set a new intraday record high, and the Nasdaq Composite traded up 0.9% for its own all-time high. The Dow Jones Industrial Average shuffled between gains and losses in midday trading.

Key technology shares were leading the way on Monday. Microsoft and Netflix each rose about 1%, while Apple jumped 3%.

Shares of Affirm Holdings surged more than 40% after the buy now, pay later company announced a partnership with Amazon on Friday. Amazon’s stock rose about 2%.

Financial stocks weighed on the broader market, with Capital One shedding over 4% and Wells Fargo losing 2%. Paypal, however, broke that trend and rose more than 2% after CNBC reported that the company is exploring a stock-trading platform for its U.S. customers.

Monday and Tuesday mark the last two trading days of August. Thus far, the S&P 500 is up 2.6% in August. The Dow Jones Industrial Average and the Nasdaq Composite have risen 1.5% and 3.1% this month, respectively.

The S&P 500 and the Nasdaq Composite closed at all-time highs on Friday as investors breathed a sigh of relief after Federal Reserve Chair Jerome Powell signaled bond tapering could start this year, but the central bank is in no rush to hike interest rates.

Powell said inflation is solidly around the central bank’s 2% target rate, one of the goals of the Fed’s dual mandate; however, the Fed chairman also explained why he continues to think the current inflation rise is transitory and will eventually drop to the target level.

Based on statements from other Fed officials, a tapering announcement could come as soon as the Fed’s Sept. 21-22 meeting. Powell said the central bank has “much ground to cover” to reach its other goal of maximum employment.

“With record GDP and earnings growth, rising inflation and the rates of infection from the Delta variant peaking, the Fed will feel more pressure to remove what is essentially emergency monetary accommodation,” wrote Morgan Stanley’s Mike Wilson, who sees a 10% correction soon in the market. “We expect a more formal signal from the Fed at the September FOMC meeting, and the markets are likely to anticipate it. That means higher interest rates and lower equity valuations.”

Stocks could stay largely range-bound until the release of August’s jobs report on Friday. Economists polled by Dow Jones expect 750,000 jobs were created in August and the unemployment rate fell to 5.2%.

With the Fed’s Jackson Hole meeting in the rearview, investors are now focused on the direction of stocks for the final months of the year. The S&P 500 is up more than 20% in 2021 but the market is also absorbing peak policy stimulus, peak earnings acceleration and peak reopening momentum.

However, a slowdown in earnings and economic growth could still be a positive environment for stocks.

“Even with a mild cool-off in economic activity, the earnings profile is unequivocally strong. Even with a degree of moderation of these sky-high levels, they will still be high enough to present a conducive environment for equities. In other words, a tone down from great settings to good,” researchers from Bank of America said in a note to clients.

Oil futures were lower and gasoline futures were higher slightly in a minimal reaction to Hurricane Ida making landfall over the weekend.

Zoom Video is set to report earnings after the bell on Monday.

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