By Sinéad Carew and Niket Nishant (Reuters) -The Nasdaq composite and S&P 500 closed modestly higher on Monday as investors bought heavyweight technology stocks and shrugged off the uncertainty of a potential U.S. government shutdown and hawkish remarks from a Federal Reserve official. The technology sector provided the benchmark S&P's biggest boost as investors bet on growth from artificial intelligence and expectations that the Fed will keep cutting interest rates as it grapples with persistent inflation concerns and labor market uncertainties. One of this week's major focus points for Wall Street however, is a standoff between Republicans and Democrats over funding that has raised the prospect of a government shutdown beginning Wednesday, the first day of the U.S. government's fiscal 2026. Even as the Labor Department prepared for a potential delay of its September jobs report in the event of a shutdown, this did not seem to be the key market driver, said Lindsey Bell, chief strategist at 248 Ventures in Charlotte, North Carolina. "Investors are clinging to the positives," Bell said, pointing to rate easing hopes and signs of economic resilience from recent releases including housing market and consumer spending data. "The market is not going to shoot to the moon, because this is a risk. But investors can look through the potential for a shutdown, because if it does occur it will likely be resolved quickly and the market can resume focusing on the things that do matter, like earnings, monetary policy and AI investments." While shutdowns have not tended to impact corporate results historically, the imminent threat may have limited gains and kept trading volume light on Monday, according to Burns McKinney, portfolio manager and NFJ Investment Group in Dallas, Texas. "The only reason it would truly move markets is if it affects the bottom line. Historically speaking, government shutdowns are brief and they don't have an impact on profitability so investors tend to be forward-looking," said McKinney. "It's just like smoke on a racetrack. They just keep the wheels straight, manage through the stress and move forward through the smoke." According to preliminary data, the S&P 500 gained 17.52 points, or 0.26%, to end at 6,661.22 points, while the Nasdaq Composite gained 107.99 points, or 0.48%, to 22,592.06. The Dow Jones Industrial Average rose 69.42 points, or 0.15%, to 46,316.71. Investors were also monitoring Fed policymakers' commentary for any signs of concern over the potential loss of economic visibility should a shutdown materialize. Cleveland Fed President Beth Hammack, among the most hawkish Fed officials and not a voter on policy this year, said on Monday the central bank needed to maintain restrictive monetary policy to cool inflation. Traders, however, are pricing in a roughly 90% chance of a 25-basis-point rate cut at the next Fed meeting, according to CME Group's FedWatch tool. With oil prices falling more than 3%, the energy sector was the biggest laggard among the S&P 500's 11 major industry sectors during the session. Technology was among the biggest gainers with big pushes from AI chip leader Nvidia along with Microsoft. Electronic Arts shares rallied after the game publisher agreed to be taken private in a $55 billion deal, fueling hopes for broader deal prospects, said Bell of 248 Ventures, who saw the transaction as "confirmation that the M&A market is open." Lam Research shares advanced after Deutsche Bank upgraded the rating on the chip-making equipment firm to "buy" from "hold." AppLovin set a fresh record high, also providing one of the biggest lifts for the S&P 500. Morgan Stanley raised the target price on the stock to $750 from $480. After U.S. President Donald Trump shared a video on Sunday promoting the health benefits of hemp-derived cannabidiol, U.S.-listed shares of cannabis-related companies rose. Canopy Growth rallied along with Cronos Group and Tilray Brands. (Reporting by Sinéad Carew in New York, Niket Nishant and Sukriti Gupta in Bengaluru; Editing by Sriraj Kalluvila, Shilpi Majumdar and Richard Chang)
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