The Dow Jones industrial average gained about 40 points, closing at a new record high, with Johnson & Johnson contributing the most gains. The S&P 500 fell 0.1 percent, after briefly hitting an all-time high, with a 0.9 percent decline in financials offsetting gains in telecommunications. The Nasdaq composite underperformed, falling 0.6 percent.
The benchmark 10-year note yield rose to 2.477 percent, after hitting its highest level since 2014. The two-year note yield, meanwhile, advanced to 1.145 percent
The Fed's policymaking committee is set to begin a two-day meeting on Tuesday, where the U.S. central bank is largely expected to raise interest rates by 25 basis points. According to the CME Group's FedWatch tool, market expectations for a rate hike this week are above 95 percent.
Luke Bartholomew, investment manager at Aberdeen Asset Management said "this meeting is more about the guidance on interest rates next year. Everyone is second guessing what a Trump presidency will mean and financial markets think that Trump could spell more inflation and growth. But that outlook is dependent on the vagaries of U.S. politics, and frankly, Trump's own personality."
Stocks have risen sharply since President-elect Donald Trump's surprising victory over Democrat Hillary Clinton, as optimism around the prospects of tax cuts and fiscal spending have flooded the market. Since Nov. 8, the major indexes have risen at least 4.5 percent, with the small-caps Russell 2000 soaring more than 15 percent. The Dow, meanwhile, has posted 15 record closes since then and gains in 21 of the past 25 sessions.
Rob Lutts, chief investment officer at Cabot Wealth Management, echoed Bittles' remarks, saying he thinks the post-election rally has room to continue. "It's very likely that the changes that are going on in Washington will be better than expected," he said. "The last time I can remember such a pro-business government was Reagan's in 1980."
The S&P 500 rose 25.77 percent in 1980, according to FactSet data.
Investors also kept an eye on oil prices, as West Texas Intermediate futures for January delivery gained 2.58 percent to settle at $52.83 per barrel, their best settle since 2015.
"Oil will be a cushion for the market, but ... yields are spiking up and you have others that are going to keep investors cautious," said Peter Cardillo, chief market economist at First Standard Financial. "I think the market has baked in a [Fed rate hike] but not a more hawkish Fed."
After nearly a year of wrangling, the Organization of the Petroleum Exporting Countries agreed on Nov. 30 to cut output by 1.2 million barrels per day for six months from Jan. 1, with top exporter Saudi Arabia cutting around 486,000 barrels per day to curb the oversupply that has dogged markets for two years.
On Saturday, producers from outside OPEC, led by Russia, agreed to reduce output by 558,000 barrels per day, short of the target of 600,000 barrels per day but still the largest contribution by non-OPEC ever.
"Although Oil prices have staged an impressive rebound, concerns still linger towards the compliance side of the cut deal with anxieties rising over OPEC and Non-OPEC members cheating," Lukman Otunuga, research analyst at FXTM, said in a note.
"With the agreement not legally binding and no punishments in place for going against the cut deal, there are fears of some cartel members not respecting their pledge which could pressure oil in the medium to longer term," he said.
In currencies, the U.S. dollar fell 0.59 percent against a basket of currencies, with the euro near $1.063 and the yen around 115.
In corporate news, shares of Lockheed Martin fell more than 2 percent after Trump said in a tweet the F-35 program was too expensive. Meanwhile, the proposed merger between CBS and Viacom was withdrawn by Shari Redstone, the vice chair of the board for both companies.
The S&P 500 fell 2.57 points, or 0.11 percent, to end at 2,256.96, with financials leading five sectors lower and telecommunications leading advancers.
The Nasdaq composite dropped 31.96 points, or 0.59 percent, to close at 5,412.54.
About two stocks declined for every advancer at the New York Stock Exchange, with an exchange volume of 967.32 million and a composite volume of 3.966 billion at the close.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 12.6.
On tap this week:
Federal Open Market Committee meeting begins
30-year bond auction
8:30 a.m. International trade
8:30 a.m. Productivity
6:00 a.m. NFIB survey
8:30 a.m. Import prices
2:00 p.m. FOMC decision
2:30 p.m. Fed Chair Janet Yellen press briefing
8:30 a.m. Initial claims
8:30 a.m. CPI
8:30 a.m. Empire state survey
8:30 a.m. Philadelphia Fed survey
8:30 a.m. Current account
9:45 a.m. Manufacturing PMI
10:00 a.m. NAHB survey
4:00 p.m. TIC data
8:30 a.m. Housing starts