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S&P to try to hold highs in lull ahead of earnings season

After the S&P's record close, macroeconomic and geopolitical news will likely dominate U.S. market action Tuesday ahead of the bank earnings reports due later in the week.

"First, I think the market wants to see if it can hold this 2,130 level. The old resistance becomes the new support," said Robert Pavlik, chief market strategist at Boston Private Wealth.

He said investors will then be watching Alcoa, which posted earnings after the close Monday that topped expectations on both the top and bottom line. Shares of the traditional earnings season bellwether stock rose more than 4 percent in after-hours trading.

Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Traders work on the floor of the New York Stock Exchange.

The S&P 500 rose 7.26 points to close at a record high of 2,137.16 on Monday after setting an intraday all-time high of 2,143.16. The last time the S&P hit fresh highs was in May 2015.

The Dow Jones industrial average and Nasdaq composite both posted their highest close of the year so far. The Dow set a fresh 52-week intraday high and is a little over half a percent below its all-time intraday high of 18,351.36 touched May 19, 2015.

"Obviously with the rally we've had, especially with the all-time high in the S&P, investors are going to look at earnings to come through," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

"Investors are preoccupied with our market hitting all-time highs. … How do we go higher from here?" he said.

Traders attributed much of Monday's gains to Japanese elections that will keep pro-stimulus Prime Minister Shinzo Abe in power, as well as positive momentum following Friday's strong jobs figure. Traders also noted some short covering.

The U.S. dollar climbed to its highest against the yen since July 1 and was near 102.8 yen versus the greenback late Monday.

Pound sterling held steady near $1.299 after rising, following news Theresa May will become U.K. prime minister. Rival Andrea Leadsom announced she was pulling out of the race early Monday and David Cameron announced he will stand down as U.K. prime minister this coming Wednesday.

The greater clarity on U.K. leadership was generally helpful for stocks, analysts said, but indications that the U.K. is moving closer to triggering Article 50, which officially begins the departure from the EU, would be negative.

"The faster they move towards notifying the EU they're leaving, the faster that sets the clock going on the time bomb," said Jason Pride, director of investment strategy at Glenmede.

Investors will also be keeping an eye on oil, which settled 65 cents lower at $44.76 a barrel, even though its weakness on Monday appeared not to hold back stocks. WTI traded above $51 a barrel in early June.

"Oil's quietly made a run here from $50 to [near] $40 with no one talking about it. … Are investors going to start dumping energy stocks again?" said Peter Coleman, head trader at Convergex.

While stocks rose Monday, Treasury yields continued to hold near recent lows. The U.S. 30-year Treasury yield even touched a fresh all-time low of 2.089 percent.

"I think easy monetary policy just has an overwhelming effect on what's going on," Coleman said.

Bank of England Governor Mark Carney is scheduled to speak early Tuesday at the Treasury Select Committee Hearing on financial stability.

In the United States, St. Louis Fed President James Bullard is set to speak at 9:35 a.m. ET on Tuesday to the Gateway Chapter of the National Association for Business Economics.

Fed Governor Daniel Tarullo is due to give remarks at 9:15 a.m. ET on Tuesday on shadow banking.

Cleveland Fed President Loretta Mester is set to speak in Australia on Monday evening on financial stability, and then Tuesday evening on the economic outlook and monetary policy.

Minneapolis Fed President Neel Kashkari is expected to give remarks at 5:30 pm ET on Tuesday on the economy and the role of the Federal Reserve System.

In economic news, the Job Openings and Labor Turnover Survey for May is due at 10 a.m. ET. The report is U.S. Federal Reserve Chair Janet Yellen's preferred indicator on the labor market. The report showed a seasonally adjusted 5.79 million openings in April.

Wholesale inventories for May and the June NFIB Small Biz Optimism Index are also expected in the morning. The U.S. Treasury is set to hold a 10-year note auction in the afternoon.

The Permanent Court of Arbitration in The Hague is also expected to rule overnight on a dispute between China and the Philippines over the South China Sea. The decision and response could be one of the most significant geopolitical events in recent history.