U.S. stocks closed sharply higher on Monday after a key Federal Reserve official advised "prudence" with regards to interest rates.
"I think there is a bit of a sigh of relief because a dovish Fed official came out and was dovish," said Anna Rathbun, director of research for CBIZ Retirement Plan Services. "There is general nervousness within the market, despite what's going on today, about the effectiveness of central bank policy."
Fed Governor Lael Brainard — a voting member of the central bank's policymaking committee — said in a speech that, while economic progress continues, it would be wise for the Fed to keep monetary policy loose.
"She resurrected some of the concerns for why the Fed shouldn't raise rates," said Quincy Krosby, market strategist at Prudential Financial. "We now go back to a thesis where the Fed wants to raise rates for other reasons," She also said "it's hard to see Janet Yellen come out and raise rates" next week.
The Dow Jones industrial average advanced more than 200 points after Brainard's speech, with 3M and IBM contributing the most gains.
"For the most part, i think market participants continue to remain a little worried," said Chris Gaffney, president of EverBank World Markets. "I think the data don't support a rate increase." "This feels more like a relief that a September rate hike is probably off the table, especially after these dovish remarks."
The S&P 500 closed more than 1 percent higher, with telecoms rising 2 percent.
"You saw, shortly after the open, telecoms and utilities leading," said Robert Pavlik, chief market strategist at Boston Private Wealth. "That tells me there was some bargain hunting." He noted that telecommunications and utilities were two of the sectors hit the hardest on Friday.
"Take a look at some of the sectors that are underperforming today. If you start to see solid gains in those, then Friday's sell-off means a little less," he said.
The Nasdaq composite outperformed, trading about 1.5 percent higher, as Apple and the iShares Nasdaq Biotechnology ETF (IBB) rose about 2.2 percent and 3 percent, respectively. The IBB was on pace to post its best trading day since July 6.