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Dow Turns Higher As Oil Surges, Stocks Gain Ahead of Q3 Earnings

U.S. oil prices extended their rally to a seventh straight week Monday, adding to inflation concerns that could dictate market direction heading into the start of the third quarter earnings season.

U.S. stocks moved higher Monday, while oil prices extended their recent rally past the highest levels in seven years, as investors prepped for a key week on Wall Street that could define market direction into the final months of the year.

With a global energy crunch boosting inflation forecasts, semiconductor shortages set to last well into 2022 and corporate profits pressured by rising input costs and a tight labor market, investors are recalibrating both their assumptions for global growth and market performance amid the lingering challenges brought on by the global pandemic.

Goldman Sachs, in fact, cut its forecast for U.S economic growth over the weekend, citing a "longer lasting virus drag on virus-sensitive consumer services" and the impact of an extended shortage in global semiconductors.

Official data on inflation and retail sales this week, following on from Friday's disappointing jobs report, will provide two key reading on the impact of energy costs and labor shortages, with minutes of the Federal Reserve's September policy meeting guiding investors as to how the central bank may react to all of those factors in the coming weeks.

On top of that, the third quarter earnings season will begin in earnest, with 19 companies reporting this week, including JPMorgan  (JPM) - Get JPMorgan Chase & Co. (JPM) Report, Citigroup  (C) - Get Citigroup Inc. Report, UnitedHealth  (UNH) - Get UnitedHealth Group Incorporated Report and Honeywell  (HON) - Get Honeywell International Inc. (HON) Report.

Collective S&P 500 profits are expected to rise 29.6% from last year to around $413.8 billion, according to forecasts from Refinitiv,. The energy sector is expected to lead gains over Q3, with profits rising by nearly 1500% from last year to around $20.5 billion.

On Wall Street, the Dow Jones Industrial Average gained 65 points by mid-day trading while the broader S&P 500 gained 7 points. The tech-focused Nasdaq Composite, meanwhile, gained 42 points as benchmark 10-year note yields hold at 1.612% in overnight trading ahead of the Columbus Day market closure.

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Merck  (MRK) - Get Merck & Co., Inc. (MRK) Report shares edged 0.15% higher after the drugmaker submitted a formal application to the Food & Drug Administration for emergency approval of its oral COVID treatment. 

DraftKings  (DKNG) - Get DraftKings Inc. (DKNG) Report rose 2% after analysts at Citigroup initiated coverage of the sports betting group with a 'buy' rating, citing the strength of the group's position in a maturing market.

Southwest Airlines  (LUV) - Get Southwest Airlines Co. Report shares, meanwhile, slumped 2.4% amid reports that the carrier will extend cancellations, which grounded nearly a third of its fleet on Sunday, into the start of the week.

Exxon Mobil  (XOM) - Get Exxon Mobil Corporation Report and Chevron  (CVX) - Get Chevron Corporation Report shares were standout pre-market gainers for the Dow, rising 0.6% and 0.25% respectively as global oil prices extended their rally into a fifth consecutive week, taking crude prices to the highest levels in seven years, as a global energy crunch continues to ripple through major economies around the world.

Flooding in China has lifted coal prices, already elevated from supply shortages and emissions standards, to record highs, provoking energy switching into crude in order to meet post-pandemic demand. Similar momentum trades are playing out in Europe, where natural gas prices remain near record highs, while OPEC continues to add only marginal amounts of crude to global markets as part of the cartel's long-running pact to limit production.

WTI futures for November delivery $2.12 higher to start the session at $81.47 per barrel while Brent contracts for December, the global pricing benchmark, were up $1.75 at $84.15 per barrel.

In overseas markets, a rebound in China tech stocks, linked to a smaller-than-expected antitrust fine for online food delivery group Meituan, gave the region-wide MSCI ex-Japan index a solid boost, while Japan's Nikkei 225 surged 1.6% after interim Prime Minister Fumio Kishida appeared to reverse and earlier policy pledge that aimed to raise taxes on big companies if he wins this fall's national elections.