U.S. stocks retreated from their best levels Monday, but still managed to finish sharply higher, helped by news that former Treasury Secretary Larry Summers had pulled out of the race to be the next chairman of the Federal Reserve.

The Dow Jones Industrial Average rallied 118.72 points, to close at 15,494.78, and is on track for its best monthly gain since January.

The S&P 500 jumped 9.61 points to finish at 1,697.60. The index earlier crossed above 1,700.

The Nasdaq fell 4.34 points to end at 3,717.85, reversing its initial gains after rallying to a fresh 13-year high near the open.

"Not a disastrous close by any means," said Dan Nathan, co-founder and editor of RiskReversal.com. Nathan sees strength in cyclical stocks, meaning equity securities whose price is affected by ups and downs in the overall economy.

Guy Adami, managing director of stockMONSTER.com, agreed. Adami said steel stocks continue to be a "pretty interesting" trade, including steelmakers Nucor and U.S. Steel. Speaking to the market at-large, Adami said he wouldn't chase this rally. Instead, he'd look for opportunities to reduce risk.

Between the uncertainty surrounding the next Fed chair and the looming debt ceiling crisis, professional trader Brian Kelly said it is tough to imitate new positions right now.

To Kelly's point, Newedge strategist Lawrence McDonald said there is a growing list of possible headwinds for the market, such as possible political wrangling over the Fed chair nomination. It seems a lot of good things have already been priced into the market, McDonald said.

In turn, McDonald thinks things are setting up for some volatility, so he wants to be long vol for the next 30 days. McDonald is currently a buyer of 10-year Treasurys.

—By CNBC's Drew Sandholm. Follow him on Twitter @DrewSandholm