Although stocks closed higher on Friday, a robust October jobs report rekindled expectations that the Fed may reduce its stimulus efforts sooner than expected. A Reuters survey showed that more US primary dealers now expect the Fed to trim its $85 billion of monthly bond purchases before March.
The day's slight gains came on light volume, with the US government and the bond market closed for Veterans Day. The S&P 500 also came close to ending the session at a record high.
"The focus is right again back to the Fed. The thinking is perhaps the taper has been moved forward. Maybe it's not going to be March, maybe December," said Bucky Hellwig, senior vice president of BB&T Wealth Management in Birmingham, Alabama.
Among the S&P 500's biggest percentage gainers, Transocean Ltd shares gained 3.6 percent to $55.37 after the company said it reached an agreement with investor Carl Icahn in which the offshore driller will pay a dividend of $3 per share and reduce the number of board seats. The S&P 500 energy index rose 0.2 percent and ranked among the day's better performers.
Twitter Inc, which went public amid much fanfare last week, climbed 3 percent to $42.90.
The Dow Jones industrial average advanced 21.32 points, or 0.14 percent, to 15,783.10, a record closing high. The Standard & Poor's 500 Index added just 1.28 points, or 0.07 percent, to finish at 1,771.89. The Nasdaq Composite Index inched up only 0.56 of a point, or 0.01 percent, to close at 3,919.79.
The Nasdaq index, which has the strongest year-to-date gains of all three major indexes, has been underperforming the broader market recently. While the Dow and the S&P 500 each posted a fifth week of gains on Friday, the Nasdaq registered a slight loss for the week.
After the bell, shares of News Corp declined 3.3 percent to $16.85. Rupert Murdoch's company reported a steeper-than-expected decline in revenue in its first quarter that it was split off from its more profitable sister entertainment business Fox.
During Monday's regular session, large technology companies had the biggest negative impact on the Nasdaq, with Apple Inc slipping 0.3 percent to $519.05.
Shares of ViroPharma jumped 25.5 percent to $49.42 following news that London-listed Shire is buying the company for $4.2 billion, attracted by a pipeline of potentially lucrative drugs to treat rare diseases.
The Fed's bond-buying stimulus program has been one of the primary reasons for this year's stocks rally as it has supported the economy and lured investors into riskier assets like equities. The S&P 500 is up 24 percent for the year so far.
Many analysts fear that the market may be ripe for a pullback before the end of the year, especially if the Fed decides to begin reducing its stimulus as early as December. Until then, the trend may remain upward.
"You can't argue with the momentum the market has had thus far, so it looks like we're still in that upward trend," Hellwig said.
Morgan Stanley analysts said in a research note that a sooner-than-expected Fed tapering could hurt defensive shares, which outperformed in October.
Investors also will pay close attention this week to results from retailers, including Macy's and Wal-Mart, both of which are expected to report increases in earnings from a year ago, based on Thomson Reuters data.
Shares of Macy's shot up 1.9 percent to $47.07 on Monday, while shares of Wal-Mart gained 1.4 percent to $79.01.
About 4.78 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, below the five-day average closing volume of about 6.62 billion, according to BATS exchange data.
Advancers outpaced decliners on the NYSE by a ratio of 15 to 14, while on the Nasdaq, decliners outnumbered advancers by about 13 to 12.