Dow notches new record closing high as Street shrugs off Italian referendum

U.S. equities closed higher on Monday, unfazed by a key vote in Italy which led to Prime Minister Matteo Renzi's resignation, as financials, technology and consumer discretionary stocks rose around 1 percent.

The Dow Jones industrial average gained around 45 points, notching record highs on an intraday and closing basis, with Goldman Sachs (GS) contributing the most gains. The S&P 500 advanced 0.58 percent, with financials, information technology and consumer discretionary leading advancers. The Nasdaq composite outperformed, closing 1 percent higher.

Stocks have been on a rip-roaring rally since the U.S. election, with the three large-cap indexes rising more than 2 percent. "I think we'll be OK through the rest of the year," said Tom Siomades, head of Hartford Funds Investment Consulting Group. "There really isn't that much to wrap your hands around through the rest of the year."

Renzi said he would step down after being defeated in a referendum regarding his plan to overhaul the Italian constitution. Renzi said voters had shown a "clear" rejection of legislative reform measures and that he would meet with his cabinet on Monday and then hand in his resignation to the President Sergio Mattarella, taking full responsibility for the defeat.

The reforms would have made it so that the executive branch needs approval only from parliament's lower house in order to pass laws. Legislation is a slow, arduous process in Italy, where there are a high number of lawmakers relative to the population, and where the two houses of parliament essentially have the same, duplicate powers.

But "going into the vote, ... the market had expected any trouble in terms of liquidity, particularly with the banks, would be mitigated by a Mario Draghi put," said Quincy Krosby, market strategist at Prudential Financial. Shares of Italian bank Banca Popolare di Milano (Milan Stock Exchange: PMI-IT) fell more than 7 percent in European trade.

"I think the fact that we went through the referendum and not much has changed since then is [good] for U.S. markets," said Kate Warne, investment strategist at Edward Jones, adding that U.S. stocks were taking their cue from European markets.

The euro (Exchange:EUR=) briefly dipped more than 1 percent against the dollar on Sunday evening, before trading higher against the U.S. currency. As of 4:01 p.m. ET, the European common currency traded 0.94 percent higher, at $1.0765. European stocks also rose, with the pan-European Stoxx 600 (^STOXX) index rising about 0.56 percent.

We didn't react today to Italy, "however, I think this is the calm before the storm," said Peter Cardillo, chief market economist at First Standard Financial, noting that the referendum's defeat puts the country's banks in a vulnerable spot.

"Much of the bounce back is mainly due to the victory of the Green party over in Austria which has faded the picture that there would be any outcome such as Brexit. But the pain for the euro may continue as the upcoming elections over in Germany, Netherland, France and Italy will maintain their pressure," said Naeem Aslam, chief market analyst at Think Markets, in a note. "The support of 1.02 could be tested in the coming months and we will be watching this level very closely."

Investors also payed attention to remarks made by New York Federal Reserve President William Dudley, in which he said he favors gradual rate hikes if the U.S. economy stays on track. The expectation among investors is for the Federal Reserve to hike interest rates at its meeting later in December. According to the CME Group's FedWatch tool, market expectations for a rate hike this month are above 90 percent.

In economic news, the November IHS Markit non-manufacturing index came in at 54.6, marking the ninth consecutive month in which the services sector has shown expansion. "Survey respondents noted that improved client confidence and a favourable domestic economic backdrop had helped to boost business activity in November," IHS said.

The November ISM services index read, meanwhile, came in at 57.2, above an October read of 54.8.

Market watchers also eyed news from the incoming presidential administration, after President-elect Donald Trump threatened payback for U.S. firms that moved abroad .

"The hope and belief of many voters is that when deciding on a candidate, campaigning is different than governing and things said doing the former are implemented more practically under the latter or not at all," Peter Boockvar, chief market analyst at The Lindsey Group, in a note to clients. "Sticking only to the economic talk (and not the SNL comments), we'll get a better regulatory and corporate/individual tax environment I believe but the trade talk was always the fear that apparently won't go away after what I read yesterday."

"I so dislike politics and I'm going to no longer discuss it after today but I have to respectively disagree with anyone that tries to convince me that this sort of trade talk is somehow a good thing," he said.

U.S. Treasurys traded mixed, with the two-year note yield (U.S.:US2Y) near 1.12 percent and the benchmark 10-year note yield (U.S.:US10Y) around 2.39 percent.

In oil markets, U.S. crude for January delivery (New York Mercantile Exchange: @CL.1) rose 0.21 percent to settle at $51.79 per barrel amid optimism surrounding an OPEC deal reached last week.

The Dow Jones industrial average (Dow Jones Global Indexes: .DJI) rose 45.82 points, or 0.24 percent, to close at 19,216.24, with Nike (NKE) leading advancers and UnitedHealth Group (UNH) leading decliners.

The S&P 500 (^GSPC) gained 12.76 points, or 0.58 percent, to 2,204.71, with financials leading nine sectors higher and health care the top decliner.

The Nasdaq composite (^IXIC) advanced 53.24 points, or 1.01 percent, to 5,308.89.

About three stocks advanced for every decliner at the New York Stock Exchange, with an exchange volume of 925.4 million and a composite volume of 3.818 billion at the close.

The CBOE Volatility Index (VIX) (^VIX), widely considered the best gauge of fear in the market, traded near 12.1.

Gold futures for February delivery (CEC:Commodities Exchange Centre: @GC.1) settled $1.30 lower at $1,176.50 per ounce.

—CNBC's Sam Meredith contributed to this report.

On tap this week:

What to Watch

Monday

Earnings: Coupa Software (COUP)

Tuesday

Earnings: Autozone (AZO), Michaels Cos (MIK), Dave and Buster's, Toll Brothers (TOL), Bob Evans (BOBE), Oxford Industries, Bank of Montreal

8:30 a.m. International trade

8:30 a.m. Productivity and costs

10 a.m. Factory orders

Wednesday

Earnings: Costco (COST), Lululemon Athletica (LULU), Brown-Forman (BF-B), Vera Bradley, H and R Block (HRB)

10 a.m. JOLTS

3 p.m. Consumer credit

Thursday

Earnings: Sears Holdings (SHLD), Broadcom (AVGO), Restoration Hardware (RH), Ciena (CIEN), Hovnanian (HOV)

8:30 a.m. Initial claims

Friday

Earnings: Vail Resorts (MTN)

10 a.m. Consumer sentiment

10 a.m. Wholesale trade

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