Investors have gotten used to seeing mixed stock market performance lately, and that was once again the case on Monday afternoon. Big gains for the Dow Jones Industrial Average (^DJI -0.15%) amounted to 323 points as of just after 2 p.m. ET, bringing the average to 35,834. The S&P 500 (^GSPC -0.04%) also climbed higher, rising 20 points to 4,718 and heading for a potential new record. Yet the Nasdaq Composite (^IXIC 0.12%) lost ground, falling 68 points to 15,990.

The big news on Wall Street Monday was that President Biden renominated current Federal Reserve Chair Jerome Powell to another term leading the central bank. Many had speculated that Biden might choose to go with Lael Brainard, who instead got the nod as Biden's choice for Fed vice chair. Below, we'll take a look at why the stock market  had a mixed response and what investors seem to expect from the pair leading the Fed.

Top half of Federal Reserve Bank building in Washington.

Image source: Getty Images.

Much ado about nothing?

Before the White House decision, few of those following the Fed chair appointment news seemed to have strong views about any major differences in policy between Powell and Brainard. Some saw Brainard as potentially being less prone to raise interest rates in response to inflationary pressures and a recovering economy, while Powell might be more apt to pull back on accommodative monetary policy to prevent the economy from overheating. Yet those differences were slight at most.

In the stock market, investors have tried to figure out exactly what impact a tighter monetary policy might have on valuations. The lack of viable investment alternatives have arguably pushed stock prices higher than they'd otherwise go, so there's fear that if interest rates rise, money might leave the stock market to pursue more attractive, fixed-income assets. Yet with even the more hawkish members of the Fed still foreseeing a long, drawn-out process of pulling back from bond purchases, nervousness about an immediate and substantial downward move seems premature.

Big gains in cyclical stocks

A closer look at Monday's stock market moves reveals some signs of what investors seem to expect after the Powell reappointment. Performing most strongly were stocks in the energy and financials sectors, both of which have significant sensitivity to economic strength and interest rates. Banks and other financial services companies tend to do better when long-term rates are substantially higher than short-term rates, and investors seem to believe that the sooner the Fed starts normalizing its monetary policy, the faster banks will return to historical levels of profitability. Meanwhile, if economic growth remains robust in the current recovery, demand for energy products will remain high.

Conversely, many of the technology and communication services companies that have performed so well over the past year were the weakest parts of the market on Monday afternoon. Higher interest rates have a disproportionately large impact on the intrinsic value of small companies whose biggest growth prospects are far in the future. Moreover, growth companies stand to lose the most if access to capital becomes constrained due to higher interest rates.

To be clear, few market watchers expect interest rates to soar skyward in a rapid and uncontrolled manner. No matter who leads it, the Fed is likely to continue to telegraph its probable future moves as much as it can, with the goal of avoiding surprises that could cause market disruptions. There may come a time when such attempts become counterproductive. For now, though, investors seem to appreciate the efforts, and that's a big part of why even today's crosscurrents aren't causing big moves lower for any segment of the stock market as a whole.