"I think the market is kind of telling you that next year will be OK," said Maris Ogg, president at Tower Bridge Advisors, adding corporate year-over-year comparables would be much easier. "Q3 was the start of the big oil decline and there were people worried that [oil] was going to drag the banks lower."
Consumer spending in the U.S. rose 0.3 percent in July, in line with expectations. The personal consumption expenditures (PCE) price index, the Fed's preferred inflation indicator, rose 0.1 percent last month and is up 1.6 percent over the 12 months through July.
"The good news is the market is reacting positively to positive economic news," said Art Hogan, chief market strategist at Wunderlich Securities.
Mariann Montagne, senior investment analyst at Gradient Investments, echoed Hogan's comments and noted "it's very good for the banks." "I think the market was encouraged by Janet Yellen's view on the economy."
The SPDR S&P Bank ETF (KBE) rose 0.87 percent and posted its ninth positive session in 10.
There are no more economic data due Monday, but investors are already looking ahead to the August jobs report, due Friday, as the odds of a rate hike next month have recently increased.
Market expectations for a Fed rate hike in September were at 24 percent Monday, after ending near 30 percent Friday, according to the CME Group's FedWatch tool.
On Friday, Fed Vice Chairman Stanley Fischer said Friday's jobs report would weigh on the Fed's decision to increase rates. Fischer made his remarks shortly after Chair Janet Yellen said the case for higher rates has strengthened "in recent months."
"What we're seeing here is a market that's focusing on the Fed," said Peter Cardillo, chief market economist at First Standard Financial. "But I think this directionless market ... is due to seasonal factors," he added, referring to low trading volumes ahead of the U.S. Labor Day holiday.
At the close, Monday was on pace for the lowest trading volume day of the year.
Cardillo also said he doesn't expect the Fed to move in September, "but I do expect one [rate hike] by the end of the year."
U.S. stocks continued to hold in a tight range, as the S&P posted its 36th straight session without closing 1 percent higher or lower on Monday. Last week, the three major indexes posted a weekly loss, with the Nasdaq snapping an eight-week winning streak.
"Interestingly last week, the market reacted the way it should've, with financials, leading," said Wunderlich's Hogan. "I think we're at a point in the cycle where ... we're looking at at least one rate hike and maybe two."
U.S. Treasuys rose broadly, with the two-year note yield near 0.81 percent and the benchmark 10-year yield around 1.56 percent.
Oil markets fell Monday, weighed in part by a rising dollar, as U.S. crude settled more than 1.39 percent lower at $46.98 a barrel. The dollar traded flat against a basket of currencies, after rising slighlty, with the euro near $1.118 and the yen around 101.95.
In corporate news, Mylan said it would launch an EpiPen generic at a 50 percent discount to the branded product's list price. The pharmaceutical firm has been under amid the rapid price increases for the EpiPen.
Meanwhile, activist investor Carl Icahn said late Friday he bought 2.3 million shares of Herbalife after Bill Ackman said he was approached indirectly by Icahn to buy the billionaire's stake in Herbalife.
Overseas, European markets closed mostly lower in thin trading, as U.K. markets were closed for a holiday. In Asia, the Nikkei 225 surged more 2.3 percent, while the Shanghai composite closed flat.