S&P 500, Dow hit fresh yearly highs ahead of inflation data, Fed policy

• Macy's up as investors mount $5.8 bln buyout bid

• Cigna surges on report it's ditching Humana deal; share buyback

• Nike higher after Citigroup says “buy”

• Indexes up: Dow 0.27%, S&P 0.30%, Nasdaq 0.14%

The S&P 500 and Dow advanced to a new annual high on Monday, although gains were modest ahead of major market catalysts this week that include inflation readings and the Federal Reserve's policy announcement, which will shape investor expectations on the path of interest rates.

Increasingly market watchers believe the central bank is done with its interest rate hike cycle and could potentially cut rates in the first half of next year. These expectations have helped fuel a rally in equities in recent weeks that sent the S&P 500 to its highest level since March 2022 and the Dow to its highest since January of last year.

In addition, the Nasdaq .IXIC closed at its highest level since April 2022 on Friday, after data showed job growth accelerated and the unemployment rate dipped, while a separate report showed consumer inflation expectations had dropped. The data raised hopes the inflation could continue to decelerate without the economy falling into a recession.

Investors will eye the Consumer Price Index (CPI) data due on Tuesday, which is expected to show headline inflation remaining unchanged in November, followed by the Producer Price Index (PPI) and the last interest rate decision of the year from the Fed on Wednesday.

“I don't think there is any reason to react ahead of either of those three events, it's just in wait-and-see mode. The trend is just going to stay higher,” said Ken Polcari, managing partner at Kace Capital Advisors in Boca Raton, Florida.

“Certainly if the CPI number comes in softer, if it's weaker than what the expectation is that will be quite bullish because it will just speak to the slowing inflation, Goldilocks kind of landing story.”

The Dow Jones Industrial Average .DJI rose 99.10 points, or 0.27% , to 36,346.97, the S&P 500 .SPX gained 13.89 points, or 0.30 %, to 4,618.26 and the Nasdaq Composite .IXIC gained 20.27 points, or 0.14 %, to 14,424.24.

Markets have almost fully priced in the central bank keeping rates steady at Wednesday's announcement, but questions remain as to the timing of the first rate cut, with expectations of a March cut of at least 25% basis points (bps) around 43% and a nearly 75% chance for May, according to CME's FedWatch Tool.

Later in the week, the European Central Bank (ECB) and the Bank of England (BOE), are also due to make policy announcements.

Semiconductors climbed nearly 4% with the PHLX semiconductor index .SOX touching its highest level since Jan. 2022, led by a surge of almost 10% in Broadcom AVGO.O, after Citigroup resumed coverage on the chipmaker with a “buy” rating.

Cigna CI.N jumped 16.2% after the health insurer ended its attempt to negotiate the acquisition of rival Humana HUM.N, according to sources, and announced a $10 billion share buyback plan. Humnana shares slipped 0.7%.

Nike NKE.N gained 2.7% to help buoy the Dow after brokerage Citigroup upgraded its stock to “buy” from “neutral”.

Among other movers, Macy's M.N shot up 21.9% after an investor group consisting of Arkhouse Management and Brigade Capital made a $5.8 billion offer to take the department store chain private, according to a source.

Declining issues outnumbered advancers for a 1.1-to-1 ratio on the NYSE and for a 1.49-to-1 ratio on the Nasdaq.

The S&P index recorded 52 new 52-week highs and no new lows, while the Nasdaq recorded 180 new highs and 130 new lows.