Stocks closed moderately higher, with the Dow rising in late trading, as investors found encouragement in continued M&A news.
"I think fair value on the market is quite a bit higher," said Jason Trennert, chief investment strategist at Strategas Research Partners. "The private equity game, in my view, is in the early innings and corporate credit spreads are telling you that. The market rarely stops at fair value. It goes from cheap to overvalued."
Volume was below average as investors struggled to find catalysts that would continue the recent rally.
"I think that the euphoria from the first-quarter earnings is now done," said Abhijit Chakrabortti, global and U.S. equity strategist for JP Morgan. "Earnings are over and people are now confronted with rising bond yields. We don't see the scope for a very significant correction, but we think the market is going to consolidate for a while here."
Utilities was one of the best performing S&P 500 sectors. Information technology was also higher throughout the session, which helped the Nasdaq. Tech was bolstered by speculation private equity will acquire Avaya. Energy was, by far, the worst performer dragged down by lower oil prices. Shares of ExxonMobil fell more than 1%.
Gains were also kept in check after news that China raised its stamp tax on stock trading in an effort to cool its red-hot stock market.
"The market feels tired to us," Richard Steinberg, chief investment officer at Steinberg Global Asset Management, told CNBC.com. "Although valuation is good, it appears to us that some money needs to come off the table and we need to go into a period of greed management."
"Finally, we have a little bit of calm," Marc Pado, U.S. market strategist at Cantor Fitzgerald, told CNBC.com. "Everybody's coming back from the long weekend and taking a breather. You have some deals out there and that has been one of the key driving forces of this rally, but I think the deals will start to slow down as we get into June."
The Conference Board’s survey of 5,000 households showed consumer confidence rose in May to 108.0, better than expected. Consumer confidence improved from April after survey participants cited a more upbeat assessment of present economic conditions.
"Good numbers in consumer confidence helps, but what's driving this market is earnings and the M&A activity that we're seeing," Andrew Seibert, senior portfolio manager at Stewart Capital told CNBC.com. "I think we'll continue to see different sectors of the market consolidate like the financials, biopharmas and a lot of the energy sector."
Treasury prices were lower, sending yields higher.
Some traders were cautious ahead of more key economic data due out later this week.
"I think the thing you have to watch for here is the yield in the bond market," said Arthur Cashin, UBS director of floor operations. "I'm going to be watching interest rates all this week. Obviously, the FOMC minutes come out tomorrow and we got a couple of auctions going down."
Bank of America's bid to buy LaSalle from ABN Amro was in doubt as the Royal Bank of Scotland-led consortium unveiled a $95.6 billion offer for the Dutch bank. The proposed deal is greater than an agreed tie-up with Barclays, initially worth $85.1 billion in stock, but hinges on RBS taking control of LaSalle.
In other highlights on the M&A front, Tishman Speyer Properties and Lehman Brothers Holdings are close to completing a deal for real estate investment trust Archstone-Smith Trustfor $20 billion, including debt, The Wall Street Journal reported Monday.
Ford is reportedly considering selling Swedish automaker Volvo to BMW, according to Swedish magazine Gotenborgs Posten’s Web site, which cited undisclosed sources.
Telecom equipment provider Avaya is talking to private equity groups about a possible takeover deal, the Journal reported.
And regulators have opened up an antitrust investigation into Google’s acquisition of Doubleclick about the implications of the deal on the online advertising market.
Shares of Advanced Medical Optics fell after the eye care products maker said it is voluntarily pulling a contact lens solution from shelves because of eye infection risk to users.
And in the energy market, New York light sweet crude futures fell below $64 dollars a barrel as fears of militant attacks related to the handover of power to Nigeria’s new president eased.
European Stock Markets Finish Mixed
European stock markets closed mixed, as merger and acquisitions failed to give the markets direction after the long weekend break.
The London FTSE-100 and Frankfurt DAX finished higher, while the Paris CAC-40 was lower.
Vodafone was one of the biggest gainers on the FTSE-100, despite the U.K. telecom company posting a full-year loss, as the company boosted its dividend more than anticipated.
Meanwhile, Rio Tinto dismissed speculation it is looking to purchase Canadian aluminum maker Alcan. Shares of the mining group fell 0.8%.
Asian Markets Mostly Higher
Asian were mostly higher, with South Korea closing at a new record high and Japan also gaining some ground.
A fall in Japan's unemployment rate to a nine-year low reinforced expectations of a Bank of Japan interest rate rise in the coming months. The yen firmed a touch on the data, but traders predicted the boost would be short-lived as Japan's lending rates will remain substantially lower than other major economies.
Tokyo's Nikkei 225 Average ended up as Sanyo Electric surged after posting strong earnings while Softbank and small-cap shares gained following strong consumer spending data. Shares of NEC Electronics surged over 5% after the Nikkei business daily reported that two U.S. funds want to increase their stake in the company by buying part
of NEC's holding.
In South Korea, the Kospi Index finished higher, setting its latest record led by LG.Philips LCD after a brokerage forecast earnings will improve, but chipmakers such as Samsung
Electronics dropped as their outlook worsened.
Australia's S&P/ASX 200 Index closed 1% higher, ending a three session losing steak, as investors sought bargains in recent decliners such as Westfield Group while firmer metal prices continued to boost the top miners. But Coles Group shed over 4% after private equity giants Kohlberg Kravis Roberts and CVC pulled out of a consortium eyeing the retailer. In other takeover news, hospital operator Healthscope formally launched a $2.3 billion offer for larger rival Symbion Health, backed by two private equity firms.
China's Shanghai Composite Index climbed above the 4,300 level for the first time, despite many institutions being cautious about the market's rapid rise. Individual investors continued piling into stocks. Official media reported the number of stock investment accounts rose above 100 million for the first time this week, up by about 27 million from the start of this year.
Hong Kong stocks fell as investors switched out of blue chips into small caps, but coal stocks jumped on fresh signs that China's demand for the resource would remain strong. China plays slightly underperformed the broad market as mainland lenders fell further amid China's monetary tightening cycle.