Red across the board except energy. The S&P fell 0.79% to 7,515. The Nasdaq dropped 1.55% to 25,873. The Dow lost 138 points to 52,499 — cushioned only by the oil stocks. Brent crude surged 9.6% to $83.30 per barrel. WTI jumped 9.4% to $78.14. The 10-year yield rose to 4.60%. Every risk-on trade sold. Every inflation trade ripped higher.

When a government puts a toll on a resource that everyone needs — oil, shipping, a chokepoint — the cost doesn't stay at the gate. It flows through. The tanker pays the fee. The refiner pays the tanker. The gas station pays the refiner. The driver pays the gas station. And when that cost lands in the monthly inflation report, the Fed has to decide whether to raise rates. That's how a tweet about a shipping lane turns into a rate hike. On Wall Street they call it a supply-side shock — prices going up not because people are buying too much, but because someone put a price on the bottleneck. And supply-side shocks are the hardest for the Fed to fight, because raising interest rates doesn't open a shipping lane.

Here's the chain. A 20% fee on all cargo passing through the Strait of Hormuz — where 20% of the world's oil used to flow before the war — is a tax on global energy. At current prices a supertanker carrying two million barrels would owe roughly $32 million to transit, up from the old Iranian fee of about $2 million. That cost gets baked into every barrel. Brent went from $76 on Friday to $83 today. WTI crossed $78. If the blockade holds and the fee sticks, oil stays above $80 through the summer. That means gasoline stays above $4. That means the July and August CPI prints don't fall. That means the Fed's doves — the ones who were ready to cut if the deal held — have nothing to stand on.

The last time the U.S. faced a supply-side inflation shock this clean — costs rising because someone restricted a chokepoint, not because the economy was running too hot — was the 1973 oil embargo. OPEC cut supply. Oil quadrupled. Inflation ran to 12%. The Fed hiked aggressively and the market fell 45% over two years. I'm not making that comparison lightly. The 2026 economy is stronger. U.S. energy production is higher. The shock is smaller. But the mechanism is the same: restrict the bottleneck, and prices go up everywhere downstream. Tomorrow's CPI covers June — before the blockade. The real test comes in the July and August prints, when the $83 oil and the 20% tariff start showing up at the pump.

Three things I'm watching tomorrow:

The number was supposed to be the easy one. May was 4.2%. The market expected a drop toward 3.8% on falling energy prices from late May and June. June data covers through June 30 — before the blockade — so it should still reflect the oil decline from $95 to $68 that happened in May. If CPI comes in below 3.8%, the "inflation peaked" story survives one more month and the Fed holds. If it comes in above 4%, the hawks own the room and Warsh's testimony that afternoon becomes a rate-hike press conference. Watch core CPI too — that strips out food and energy and tells you whether the inflation is broad or just oil.

JPMorgan, Goldman Sachs, Bank of America, Wells Fargo, and Citigroup all report before the bell Tuesday. The banks have been minting money from the oil and rates volatility — trading desks love this tape. If JPMorgan posts a blowout trading quarter and guides above consensus, the financial sector catches a bid and the broadening trade survives the oil shock. If the banks warn on consumer credit quality — if delinquencies are rising, if credit card balances are stretched — the PepsiCo "soft North America" story hardens into a recession signal. The banks see the consumer before anyone else does.

The new Fed chair testifies before the House Financial Services Committee Tuesday afternoon — hours after CPI and the bank earnings. He inherits a committee that was split three ways in the June minutes: hawks who want to hike, doves who wanted to cut if the deal held, and the middle that said hold. The deal just died. The doves' case died with it. And now Waller — his own Fed governor — is publicly saying rates may need to go up. Warsh walked into the job as a centrist who killed forward guidance. Tomorrow the market finds out whether he's still a centrist or whether the blockade turned him into a hawk. Every word matters.

Tomorrow is the biggest day of Q3. CPI at 8:30. Five banks before the bell. Warsh on the Hill after lunch. And at 4 PM, the blockade begins. The market went from pricing a deal on Thursday to pricing a toll booth on Monday. The second half of 2026 just got rewritten — again — in a single Truth Social post.

That's it for today. See you tomorrow after the close.