By Stephen Culp

NEW YORK (Reuters) – U.S. stocks advanced on Monday, extending last week’s gains as signs of economic softness suggested the effects of the Fed’s aggressive policy aimed at cooling the economy, thereby curbing decades-high inflation, are beginning to take root.

All three major U.S. stock indexes gained momentum throughout the first session of a week jam-packed with high profile corporate earnings and crucial economic data.

A report from S&P Global showed a contraction in business activity this month, offering a hint that the Federal Reserve’s barrage of steep interest rate hikes are having their desired effect, raising hopes that the central bank could begin slowing the pace of increases to the Fed funds target rate.

“It’s a sign the economy is slowing down and what the Fed is doing is working,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “They may be achieving their goal and we might be approaching the fourth quarter of rate hikes, to use an football analogy.”

The Dow Jones Industrial Average rose 417.06 points, or 1.34%, to 31,499.62, the S&P 500 gained 44.59 points, or 1.19%, to 3,797.34 and the Nasdaq Composite added 92.90 points, or 0.86%, to 10,952.61.

Among the 11 major sectors in the S&P 500, nine closed green, with healthcare enjoying the largest percentage gain. Materials and real estate ended the session in negative territory.

Tesla Inc shares slid 1.5% after the electric automaker cut prices for its Model 3 and Model Y cars by as much as 9% in China, signaling softening demand in the world’s largest auto market.

U.S.-listed shares of Chinese companies such as Pinduoduo, JD.com and Baidu Inc plunged between 12% and 25% as President Xi Jinping introduced the new Politburo Standing Committee stacked with loyalists.

“The news coming out of China makes you think there’s going to be a firmer if not antagonistic China in our future,” Tuz added. “But it’s too early to see how it’s going to play out as far as where you invest in the future.”

Third quarter earnings season shifts into overdrive this week. So far, nearly one-fifth of the companies in the S&P 500 have reported. Of those, 74.7% have delivered consensus-beating results, according to Refinitiv data.

Analysts expect S&P 500 earnings growth of 3.0%, on aggregate, down from 4.5% at the beginning of the month, per Refinitiv.

Results from a slew of heavy-hitting tech and tech-adjacent companies are likely to dominate the earnings chatter this week.

Microsoft Corp and Alphabet Inc following on Tuesday. On Wednesday, Apple Inc and Meta Platforms Inc step up to the plate, with Amazon.com wrapping up the FAANGs on Thursday.

High-rolling industrials are also expected to post earnings this week, including United Parcel Service, Boeing Co, Ford Motor Co, 3M Co, General Motors Co, Chevron and Exxon Mobil.

Advancing issues outnumbered declining ones on the NYSE by a 1.36-to-1 ratio; on Nasdaq, a 1.03-to-1 ratio favored advancers.

The S&P 500 posted 21 new 52-week highs and 4 new lows; the Nasdaq Composite recorded 73 new highs and 331 new lows.

Volume on U.S. exchanges was 11.80 billion shares, compared with the 11.56 billion average for the full session over the last 20 trading days.

(Reporting by Stephen Culp; Additional reporting by Bansari Mayur Kamdar and Amruta Khandekar in Bengaluru; editing by Grant McCool)

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