The Dow Jones Industrial Average closed Monday’s trading session lower.

The 30-stock Dow slipped 81.33 points, or 0.21%, to close at 39,431.51. The S&P 500 slipped 0.02%, settling at 5,221.42. On the other hand, the tech-heavy Nasdaq Composite added 0.29% to finish at 16,388.24.

— Lisa Kailai Han

Wall Street is underappreciating the growth outlook for the defense sector, according to Citi. 

Witness the fact the SPDR S&P Aerospace and Defense ETF has risen about 6.1% year to date, lagging the S&P 500′s 9.6% gain. 

Nonetheless, Citi remains confident in “the bull case for defense.” Fueled by “budget gimmicks in D.C. and headlines in the media,” many investors believe that U.S. defense spending has stopped growing, according to analyst Jason Gursky. In reality, both the data as well as political rhetoric undercut that argument. What’s more, European countries are raising their defense budgets, he added.

CNBC Pro can find some of Citi’s favorite defense stocks here.

— Hakyung Kim

Last week’s equity rally following a rocky period in April indicates the market is moving past its pullback, according to HSBC.

“The dip in risk assets is increasingly in the rear-view mirror as many major equity indices re-approach their year-to-date highs,” strategist Duncan Toms wrote in a Monday note. “These broad-based gains once again resemble a Goldilocks-style rally.”

With investors looking toward Wednesday’s CPI report, Toms believes “the bar for ever more hawkish surprises is getting higher.” Consequentially, the strategist believes even in-line expectations could be another catalyst for risk assets to climb higher.

— Hakyung Kim

After the utilities sector had a rebound rally last week, it could be time for another defensive group to have its turn in the spotlight, according to BTIG.

Strategist Jonathan Krinsky said in a note to clients Sunday evening that consumer staples could be the next overdue group to bounce.

“Below the surface, Utilities are no longer timely. We liked them in late March, and while we wouldn’t fade the strength, we would await some consolidation here. Consumer Staples do still look compelling to us as they attempt to breakout of a multi-year base,” Krinsky said.

Krinsky did caution that the “risk-on environment” may need to further weaken for staples to truly breakout.

“If Staples begin to outperform meaningfully, that would be more of a warning sign broadly,” he said.

— Jesse Pound

Leon Cooperman, Omega Family Office chairman and CEO, believes the Federal Reverse’s monetary policy is not too tight, citing a booming stock market with speculative activities.

“There’s a lot of talk about the Fed being restrictive,” Cooperman said on CNBC’s “Power Lunch.” “I don’t think they’re being restrictive. Where’s the evidence that the Fed is restrictive? We have the stock market at or near a high. We have tremendous speculation individual stocks.”

The widely followed investor said the catalysts for a financial crisis include a collapse in the dollar and the upcoming presidential election.

— Yun Li

Utilities has been the best-performing sector by far this quarter because of rising artificial intelligence needs, according to Raymond James.

“From a sector standpoint, the tremendous outperformance of utilities this quarter, likely the result of a narrative around the benefits of AI electricity needs, has been the most noticeable sector move,” the financial firm wrote in a recent note.

The S&P 500 utilities sector index has added 8.4% so far this quarter. By contrast, communication services, the next best-performing sector, has increased 2.8% during the same period.

— Lisa Kailai Han

How the market moves in the next two weeks will lay the groundwork for what will come in the first portion of summer trading, according to UBS.

Asset allocation head Jason Draho said the next two weeks should be noisy with the consumer price index and Nvidia earnings on deck. These can set the tone for the beginning portion of summer trading, he added.

“Inflation and NVIDIA earnings data that exceed expectations could set the stage for an early summer melt-up,” Draho wrote in a note.

Having both macro and micro data points simultaneously top of mind is noteworthy, he wrote.

“It isn’t common for investors, and therefore the markets, to be this highly sensitive to both macro and micro data points at the same time,” Draho said. “Perhaps this distinction doesn’t matter and market-moving information is important no matter the type. But there are investment implications from having two uncorrelated forces influencing market performance.”

— Alex Harring

Stocks could see a cloudy environment over the next few months as investors position for a soft landing for the economy that could be thwarted by stubborn inflation, according to JPMorgan strategist Marko Kolanovic.

The market is “entering into [a] seasonally tricky time of the year, on top of a challenging combination of inflation at risk of staying too high and profit margin pressures,” the bank’s chief market strategist said in a note Monday. With stocks riding a solid rally over the past month, the rising danger is that markets get too complacent.

“The Goldilocks view that market embraced in Q1 of inflation/rates moving lower but at the same time of earnings acceleration and economy having no landing remains an inconsistent one,” Kolanovic said. “We look for more of a consolidation in equity markets over the next months.”

A consolidation is generally a time when markets slosh around between highs and lows, with little conviction higher or lower. To get past that point, Kolanovic said the “gap” between the Fed and market expectations “needs to close.”

— Jeff Cox

Xponential Fitness shares tumbled more than 9% on Monday after the top executive was suspended indefinitely.

CEO Anthony Geisler has been placed on suspension without a return date and is an inactive member of the board, the company said late Friday. The move comes after Xponential Fitness received notice last week that it was being probed by attorneys.

Xponential Fitness previously disclosed a U.S. Securities and Exchange Commission investigation in December. The Pure Barre and Club Pilates parent had been accused of intentionally misleading investors and franchise owners by providing incorrect information.

Shares of the fitness company, which is also the parent of CycleBar, have plummeted nearly 40% so far in 2024.

— Alex Harring, Brandon Gomez

Morgan Stanley sees inflation moving lower this year, the firm’s chief global economist wrote in a recent report.

“While Wednesday’s report will be critical for the timing of the first cut, regardless of the print, we remain confident that inflation will trend lower over the year, making the question when, not if, the Fed will cut,” wrote Seth Carpenter, pointing to April’s CPI report, which is due to be released Wednesday morning.

The economist clarified that while the timing of the first cut is up for debate, the path for the year is unlikely to change too much.

— Lisa Kailai Han

Cocoa prices dropped more than 19% on Monday, giving up some of the gains that boosted the commodity toward record highs this year.

Prices last traded at around $7,175, after dropping about $1,700 per metric ton. This drop would mark the biggest intraday decline since at least 1980.

— Samantha Subin

Check out the companies making headlines in midday trading:

• Walgreens Boots Alliance — The stock advanced 5.4% on news that Walgreens is looking for potential buyers for its $8.8 billion Boots drugstore chain in the U.K., Bloomberg reported Monday.
• GameStop — Shares in the video game retailer soared more than 65% on Monday after “Roaring Kitty,” the man who fueled the 2021 GameStop mania, posted online on Reddit for the first time in roughly three years. Trading was halted multiple times due to volatility.
• Xponential Fitness — Xponential Fitness shares were last up nearly 8.5% in volatile trading. The stock earlier Monday had tumbled more than 9%, reaching a 52-week low, after the company’s top executive was suspended without a return date.

For the full list, read here.

— Pia Singh

Reddit and Robinhood appear to be benefiting from the renewed interest in GameStop.

Shares of the social media company rose 9%, while the brokerage stock rose 8%. Both companies saw heavy user activity during the 2021 meme stock era, though neither had a publicly traded stock when GameStop first took off.

— Jesse Pound

Federal Reserve Vice Chair Philip Jefferson backed the central bank’s current stance of monetary policy, saying Monday that a higher level of interest rates is appropriate until more evidence comes in that inflation is on a sustainable path lower.

“My view is that in light of the attenuation in progress in terms of getting inflation down to our target, it is appropriate that we maintain the policy rate in restrictive territory, which it is right now,” Jefferson said in a question-and-answer session with outgoing Cleveland Fed President Loretta Mester.

The Fed should “continue to look for additional evidence that inflation is going to return to our 2% target, and until we have that, I think it is appropriate to keep the policy rate in restrictive territory,” he added.

As a governor, Jefferson is a permanent voting member of the rate-setting Federal Open Market Committee.

— Jeff Cox

Monday’s rally in GameStop slapped short sellers with a $1.02 billion mark-to-market loss on their positions in early trading, according to Ihor Dusaniwsky, managing director at S3 Partners, which closely monitors short selling activity.

Monday’s losses “more than offsets the very profitable first four months of the year that GME short sellers had, earning +$392 million mark-to-market profits, +47%,” Dusaniwsky wrote in an email. “Including today’s losses, GME shorts are now down -$1.43 billion in May month-to-date losses, and now down -$1.03 billion for the year.” 

Losses notwithstanding, S3 expects “new short sellers to jump into this trade as GME stock prices around or above the $30 level will be attractive entry points for new short selling.”

Moreover, “meme stock frenzy buying may be back with AMC up over 20% and DJT up 9%,” Dusaniwsky said. “Short sellers may be in for a bumpy and bloody ride in these stocks.”

GameStop has already traded more than 36 million shares, as the brick-and-mortar video game retailer soared following a post from “Roaring Kitty.” That volume easily eclipses the stock’s 30-day average of 9.9 million.

— Fred Imbert

In AllianceBernstein’s bull case for Apple, analyst Toni Sacconaghi believes the iPhone maker’s stock could rally 28% to $235.

“The bull case is that replacement cycle and AI tailwinds could drive a strong iPhone 16 cycle, and that Apple’s longer-term valuation is reasonable given its ultra-high quality of earnings/cash flow, strong moat, and sustained growth story,” the analyst wrote in a note from Monday.

Sacconaghi has currently assigned the stock an outperform rating accompanied by a price target of $195, implying that shares could add nearly 7% from their Friday close.

In the same report, the analyst said he is less concerned about the China marketplace.

“We see China’s business as cyclically pressured, not structurally altered, he added.

— Lisa Kailai Han

Check out the companies making headlines before the bell:

GameStop — GameStop shares rallied more than 37% in the premarket after “Roaring Kitty” posted for the first time in roughly three years. The post, a picture on social media site X of a video gamer leaning forward on their chair as to indicate he is taking the game seriously, marked Roaring Kitty’s first post on the platform — or on Reddit — since 2021.

Arm Holdings — Shares popped 3.4% following a Nikkei report that the chip company is looking to launch its first artificial intelligence chips next year. Arm hopes to build the prototype by spring 2024, according to the report.  

Nvidia — Nvidia shares added about 1% after Jefferies hiked its price target on the chipmaker to $1,200 a share, implying about 34% upside. “We believe it’s too early to sift out winners and losers in the AI basket yet, but NVDA is our favorite,” analyst Blayne Curtis wrote.

— Hakyung Kim