- Investors were preparing themselves for the start of the Fed's meeting this week.
- Market participants are largely expecting interest rates to remain unchanged.
- But Wall Street is expecting the Fed to announce the unwinding of its $4.5 trillion balance sheet.
U.S. stocks closed higher on Monday as investors looked ahead to a key Federal Reserve meeting. Wall Street also cheered a big defense industry deal.
The also closed at an all-time high of 2,503.87, rising 0.1 percent, as financials led advancers. The Nasdaq composite hit an intraday record before closing 0.1 percent higher at 6,454.64.
The three major indexes also posted record highs last week, with the S&P breaking above 2,500 for the first time on Friday's close.
"This is probably a continuation of what we saw last week," said Ryan Detrick, senior market strategist at LPL Financial. "Believe it or not, the Dow is on track for its fifth straight record close."
"It's a tricky time of the year, but the fundamentals look strong," Detrick said, referring to the seasonal headwinds associated with the month of September.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, hit 9.88, its lowest level since Aug. 8. It traded 0.5 percent lower at 10.12.
Market participants are largely expecting interest rates to remain unchanged. But Wall Street is expecting the Fed to announce the unwinding of its $4.5 trillion balance sheet. The Fed accrued most of its massive portfolio during the financial crisis.
"The focus is on the Fed meeting" this week, said Eric Wiegand, senior portfolio manager at U.S. Bank. "When we look at this process, we think it will be long, very measured and very gradual."
U.S. Treasury yields rose broadly on Monday. The benchmark 10-year yield traded at 2.23 percent. The short-term two-year yield, which is more sensitive to changes in monetary policy, traded at 1.397 percent.
Meanwhile, shares of Orbital ATK rose about 20 percent after announcing it is being bought by defense giant Northrop Grumman. In a release, the two companies said Northrop would pay $9.2 billion in cash and debt. Orbital shareholders will receive all-cash consideration of $134.50 a share, a 22 percent premium to its Friday close of $110.04.
In a note last week, JPMorgan analyst Seth Seifman said acquiring Orbital "could strengthen" Northrop, noting: "Northrop is among the leaders in military satellites (including classified) and we could see OA's capabilities helping here."
The deal comes two weeks after United Technologies announced its acquisition of Rockwell Collins for $30 billion.
Overall, defense stocks have outperformed the broader U.S. stock market. The iShares U.S. Aerospace & Defense exchange-traded fund (ITA) has risen more than 20 percent this year. The S&P 500, meanwhile, has gained about 11.7 percent.
Overseas, stocks rose broadly. The European Stoxx 600 index gained 0.3 percent, while the Korean Kospi index advanced 1.35 percent.