Stocks trimmed gains, but continued to rise, after news of strong manufacturing in the U.S. and China, and ahead of a week filled with major events, including Tuesday’s mid-term election.
The Dow Jones Industrial Average rose more than 55 points, paring earlier gains, after posting the best October performance in four years.
Most of the 30 Dow components gained, led by Intel , Travelers and Caterpillar . Alcoa slipped.
The S&P 500 Index and the Nasdaq rose. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose slightly to above 21.
Most S&P 500 sectors rose, led by energy, industrials, and tech.
Investors were also awaiting a key decision on Federal Reserve policy, expected Wednesday, and the October jobs report on Friday.
The rally most likely lost steam as investors became hesitant to chase it higher ahead of key events affecting the markets and economy this week, said Craig Peckham, equity product strategist at Jefferies & Co.
"Everybody is laser-focused on two maybe three macro events this week, with not a lot of incentive to make aggressive moves ahead of those," Peckham said.
The most important event will be the Fed's decision on how much monetary stimulus, or quantitative easing,to provide the economy, he said.
"It's not a question of whether you get quantitative easing, but a question of how much, over what time line," Peckham said. He added that Jefferies strategists said the Fed meeting will provide the central bank authorities with an opportunity to more explicitly target what they want to see in the economy before declaring their monetary stimulus program to be a success.
Monday's market rally started after news that Chinese manufacturing was surprisingly strong,rising to a six-month high. That was followed by a surprisingly strong reading onmanufacturing data in the U.S.
Another raft of earnings reports were due out Monday, as well as the rest of the week. Of the two-third of S&P 500 companies that had reported earnings as of Friday, 77 percent beat estimates, according to data from Thomson Reuters.
Before the market opened, Baker-Hughes reported third-quarter earnings that were four times higher on strong growth from its North American business, and the acquisition of BJ Services. Shares of the oilfield-services company rose.
Loews reported third-quarter profits fell to $36 million or 9 cents a share, from $468 million or $1.08 a share, taking a hit from losses due to asbestos risks at CNA Financial, its commercial insurance affiliate. share.
Shares of Humana rose slightly after the health insurer posted an unanticipated spike in third-quarter profit thanks to lower medical costs, and higher membership in its Medicare plans.
Wilmington Trust's shares plunged more than 40 percent after news the bank will be acquired by M&T Bank in an approximate $351 million stock deal. The price values the Delaware bank at 46 percent below Wilmington Trust's closing price on Friday.
Ambac could be headed toward bankruptcy after the bond insurer said it will file Chapter 11 if it can't find financing. The company missed an interest debt payment Monday, and its shares fell 44 percent.
AIG said it sold two foreign insurance units for $37 billion. The insurer will use the funds to repay the government. The insurer also closed its sale of American Life Insurance to MetLife for $16.2 billion, and completed a $20.5 billion initial public offering in Hong Kong for AIA Group.
The semiconductor industry got a boost from Macquarie, which upgraded Intel to "outperform," and AMD to "neutral," saying the companies will benefit from a end to an inventory correction for microprocessors.
Also, Bernstein raised its rating for Pfizer to "outperform" from "market perform."
In M&A news, McKesson , a pharmaceutical distributor, plans to buy US Oncology, a privately-held cancer specialist, for about $2.16 billion.
Oppenheimer helped to raise prices among energy stocks after the brokerage raised the sector to "market weight" from "underweight." The brokerage cited earnings growth and stabilizing prices for crud oil. Specifically, Oppenheimer cited Exxon Mobil , ConocoPhillips , and Chevron .
Oppenheimer also raised Halliburton to "outperform" from "perform," saying margins for the oilfield services provider should continue to grow next year. Halliburton last week was the subject of a White House panel on the BP oil-spill disaster, after the group found the company used flawed cement in the Gulf of Mexico oil well.
Republicans are widely seen taking control of the House of Representatives after Tuesday’s election, while Democrats are expected to retain control of the Senate. The expectation of gridlock has so far been taken as a positive by investors.
The outcome of the Fed meeting has in some ways been much more debated and has created more anxiety for markets than the outcome of the mid-term election, as the promise of a new round of quantitative easing has driven down the dollar and pumped up stocks and commodities prices around the globe.
Most economists and fund managers surveyed by CNBCexpect the Fed will begin with a large amount of purchases.
In other economic news, The Institute of Supply Management's Manufacturing Index rose to 56.9, better than anticipated. The ISM Index was at 54.4 in September. Any number above 50 indicates growth.
Construction spending rose 0.5 percent, also better-than-expected.
Also, personal spending rose 0.2 percent even though income fell 0.1 percent in September. Economists had expected income to have risen 0.3 percent in September after jumping 0.5 percent in August, Briefing.com said.
European stocks were firmer in morning trading, with miners and chemical companies among the gainers after the news of strength in Chinese manufacturing.
The dollar weakened ahead of the Federal Reserve's likely monetary easing. The dollar index was last this low on Jan. 19.
On Tap Next Week:
MONDAY:After-the-bell earnings from Anadarko Petroleum and Principal Financial Group.
TUESDAY: Election Day, auto sales, FOMC meeting begins; before-the-bell earnings from BP, Pfizer, Kellogg and MasterCard; after-the-bell earnings from Electronic Arts
WEDNESDAY: FOMC announcement; MBA mortgage applications, Challenger job-cut report, ADP employment report, Treasury refunding announcement, factory orders, ISM non-manufacturing index, oil inventories; before-the-bell earnings from Time Warner, Aetna, CVS; after-the-bell earnings from Chesapeake Energy, News Corp, Prudential Financial and Transocean
THURSDAY: Chain-store sales, BoE announcement, jobless claims, productivity and costs, ECB announcement; after-the-bell earnings from Kraft and Starbucks
FRIDAY: Pending home sales index, non-farm payrolls report, consumer credit; Kansas City Fed President Hoenig speaks; before-the-bell earnings from Toyota; after-the-bell earnings from Berkshire Hathaway
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