By Dan Strumpf
Stocks pushed higher, as better-than-expected earnings from Citigroup Inc. helped major benchmarks recover from last week's swoon.
The Dow Jones Industrial Average climbed 111.61 points, or 0.7%, to 17055.42. The blue-chip index forged a record in intraday trading though fell short of closing at a record high.
The S&P 500 index tacked on 9.53 points, or 0.5%, to 1977.10. The Nasdaq Composite Index added 24.93 points, or 0.6%, to 4440.42.
Financial stocks climbed, with shares of Citigroup rising 3.1% to a one-month high after the bank said it agreed to pay $7 billion to settle allegations by the U.S. government about the quality of mortgages it sold leading up to the financial crisis.
The bank also reported that its second-quarter profit tumbled 96% due to a charge related to the settlement. Stripping out the charge, the results topped Wall Street estimates. The gains lifted the S&P 500 Financial sector index 0.6%.
"The settlement that came out today closes a chapter and alleviates some uncertainty" for the bank, said Reed Choate, portfolio manager at Neville, Rodie & Shaw, a New York firm that manages $1.4 billion.
Monday's rally follows losses across the stock market last week, amid jitters over the financial health of a Portuguese bank. The S&P 500 and Nasdaq Composite dropped the most since April, while the Dow posted its biggest weekly loss in a month.
Financial shares in particular have been hit hard recently. Big banks have been hit by litigation costs and a downturn in once-lucrative trading businesses, while a weak mortgage market has crimped lenders. The financial sector index is up 4.4% year to date, trailing the 7% gain in the broader S&P 500.
Despite Monday's recovery, shares of Citigroup are down 7% this year and 2.3% from a recent high in early June.
Financial company fortunes aren't expected to improve soon. Analysts expect second-quarter earnings in the sector to decline 4.2%, according to FactSet, on top of a 2.6% drop in earnings in the first three months of the year. Second-quarter earnings for the broader S&P 500 are expected to rise 4.5%.
Although a pickup in corporate mergers is helping many banks, "stronger investment banking activity is likely to be offset by continued weakness in trading operations," according to Jonathan Golub, chief U.S. market strategist at RBC Capital Markets.
Mr. Choate said he owns a basket of financial stocks, but he prefers shares of smaller firms and regional banks that don't face the same trading pressures as big investment banks. "I think some of the big banks are going to be tough to own through the earnings season," he said.
Second-quarter earnings are expected to take center stage this week, when more than 50 companies in the S&P 500 are to report.
Many investors remain optimistic on the outlook for stocks broadly, amid improving U.S. economic data, improving earnings and accommodative Federal Reserve policy. U.S. stocks have steadily pushed to records through the year.
"We go through these short periods where the market sells off and there's a little bit of a rotation...and then you get a pullback and the market comes rallying back," said Andrew Slimmon, who helps manage $4 billion as a managing director at a unit of Morgan Stanley Wealth Management.
Mr. Slimmon said he has been picking up shares of companies expected to show strong earnings growth, though he is increasingly cautious to avoid stocks with high price tags. Investors looking for bargains would be better served shopping outside the U.S., he said. "There's bigger values elsewhere."
Monday saw no major economic data. Later this week, investors are likely to focus on reports on June retail sales and readings on manufacturing and housing. Federal Reserve Chairwoman Janet Yellen is due to give semiannual testimony to Congress on Tuesday and Wednesday.
European stocks were recovering following last week's turbulence. The Stoxx Europe 600 index rose 0.9%, clawing back part of last week's losses.
The dollar eased against the euro but gained on the yen. The yield on the 10-year Treasury note edged up to 2.548%.
In commodity markets, gold futures tumbled 2.3% to $1,306.30 an ounce, while crude-oil futures tacked on 0.1% to $100.91 a barrel.
In other corporate news, U.S. drug company AbbVie Inc. is nearing a deal to buy Dublin-based Shire PLC for more than EUR31 billion ($54 billion). Shire said Monday it had received yet another offer from AbbVie, for EUR53.20 a share, marking the fifth takeover bid by AbbVie.
Shares of AbbVie fell 0.2%. U.S.-based shares of Shire rose 2.1%.
Shares of Riverbed Technology fell 8.6% after the information-technology company lowered its second-quarter revenue outlook, as sales fell short of company targets.
Write to Dan Strumpf at email@example.com