Market Snapshot: U.S. stocks extend gains on broad-market rally led by tech shares

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U.S. stocks rose on Monday in a broad-based rally led by technology shares on the back of rotational buying. Investors are also bracing for a busy week of that will feature several Federal Reserve speakers, including the new Fed Chairman Jerome Powell’s appearance in front of Congress.

What are the main benchmarks doing?

The Dow Jones Industrial Average  DJIA, +1.31% rose 354 points, or 1.4%, to 25,664. The S&P 500 index SPX, +0.92% climbed 26 points, or 1%, to 2,773. The Nasdaq Composite Index COMP, +0.91%  added 72 points, or 1%, to 7,409.

The day’s gains were broad, with 10 of the 11 primary S&P 500 sectors in solidly higher as the tech sector posted strong gains. Among the notable gainers were Apple Inc. AAPL, +2.00%  which rose 2.2%, Intel Corp. INTC, +2.47%  which added 2.6%. Microsoft Corp. MSFT, +0.98%  which was up 1.1%.

Both the Dow and S&P are on track for their third straight daily advance. On Friday, all three gauges gained more than 1% as each benchmark notched its second positive week in a row. Friday represented the best day for the S&P in nearly three weeks.

What could drive markets?

Concerns that inflation could be returning to markets, and that the U.S. central bank may have to more aggressively raise interest rates to combat such a scenario, has been the primary driver of trading in recent weeks, even eclipsing a strong earnings season.

The fear recently pushed the Dow and S&P into correction territory, though they have recovered much of their lost ground, and now stand less than 5% below record levels. Last week, investors were heartened by a recent Fed report that gave little hint it was prepared to raise U.S. interest rates more aggressively this year, as has recently been a primary investor fear.

On Monday, St. Louis Fed President James Bullard said he doesn’t think the so-called neutral U.S. interest rate is likely to rise much over the next two years.

The main attraction this week will be Fed Chairman Powell, who will head to Capitol Hill on Tuesday for the first of two sessions of questions with U.S. lawmakers. Among other insights, investors want to know if the Fed is planning four interest-rate hikes for 2018 instead of three.

Read: Fed and new boss Jerome Powell are on inflation watch as anxious investors look on

Receding bond yields may also be giving stocks a lift. The yield on the 10-year Treasury note TMUBMUSD10Y, -0.22% continue to pull lower on Monday, last at 2.85% from 2.871% late Friday.

Read: Why a spike in the 10-year Treasury yield to 3% won’t be a death knell for stocks

In the latest economic data, the Chicago Fed national activity index came in at 0.12 in January, compared with 0.14 in the previous month. New-home sales ran at a seasonally adjusted annual rate of 593,000 in January, the Commerce Department said. The MarketWatch consensus forecast was for a 648,000 rate.

What are strategists saying?

“We’re setting a stage for where we can live with a higher sense of inflation, but still have a market supported by fiscal policy. In other words, the consensus is that rates shouldn’t go up at a rapid pace,” said Frank Davis, director of sales and trading at LEK Securities. “There was a sense that the move down was overdue and perhaps a bit overdone, so it makes a little bit of sense that the move back up has been rapid as well.”

Jason Pride, director of investment strategy at Glenmede, said investors are worried about inflation due to the different paths that the Fed could potentially take moving forward.

“[The Fed] can use renewed inflationary pressure as an opportunity to tighten further by normalizing interest rates. Alternatively, it may exercise flexibility around a 2.0% target and effectively allow the economy—and potentially inflation—to run hot for some time,” he said in a note.

Read: Stocks could plunge another 25% if this happens, warns Goldman Sachs

What stocks are active?

United Parcel Service Inc. UPS, +1.91%  shares gained 2%. The package delivery service announced it is suing the European Union’s antitrust watchdog for $2.15 billion plus interest over its decision to block a $7 billion merger with Dutch-based TNT Express NV in 2013.

Dean Foods Co. DF, -12.44%  tumbled 13% after it reported fourth-quarter earnings that missed expectations. It also issued an outlook that was below forecasts.

AMC Networks Inc. AMCX, +2.40%  agreed to buy RLJ Entertainment RLJE, +8.77%  for $4.25 a share, a price that represents a premium of 9.8% to its Friday closing price. Shares of AMC were up 2.3% while RLJ jumped 8.8%.

Shares of Hibbett Sports Inc. HIBB, -1.29%  slipped 1.1% despite the retailer raising its fourth-quarter guidance.

Gun makers have been more closely followed as more corporate partners sever ties with the National Rifle Association. On Monday, Bank of America said it would ask its clients who manufacture assault rifles how they can help end mass shootings, according to media reports. American Outdoor Brands Corp. AOBC, -3.20% was trading 3.3% lower on Monday.

How are other assets performing?

European stocks SXXP, +0.50% ended higher across the board, while Asian equities mostly closed in positive territory.

The ICE U.S. Dollar Index DXY, -0.12% DXY, -0.12% erased earlier losses to trade flat while gold GCH8, +0.29% settled slightly higher. Crude-oil futures CLJ8, +0.50% CLJ8, +0.50% reversed earlier declines to rise 0.5%.

—Barbara Kollmeyer contributed to this article