Friday we celebrated the best month since 2020. Nasdaq above 25,000 for the first time. Earnings beat at 80%. The market looked unstoppable. Then Iran fired missiles at the UAE this morning, lit the one oil terminal that bypasses the Strait of Hormuz on fire, and reminded everyone what the word "risk" means. Three trading days between record highs and missile alerts. That's the tape right now.

Down across the board. The Dow fell 557 points — worst day in three weeks. The S&P 500 lost 0.4%. The Nasdaq held up better, off just 0.2%, because software and memory chips caught a bid while everything else sold. Only two of the eleven sectors finished in the green. Energy was one of them.

The trigger came before the U.S. open. Iran launched twelve ballistic missiles, three cruise missiles, and four drones at the United Arab Emirates. The UAE's air defense system intercepted most of them. Three people were injured. But one drone hit Fujairah — that's the oil terminal at the end of the pipeline the UAE built specifically to bypass the Strait of Hormuz. A fire broke out. When the one workaround for the Strait is on fire, the market notices fast.

Oil repriced in minutes. Brent jumped 6% to close at $114.44. WTI was up 4.4% to $106.42. Chevron's CEO was at the Milken conference and told reporters that fuel shortages are growing and it will take "months" for oil exports to normalize even after the Strait reopens. Exxon's CEO said Friday that the market hasn't seen the full impact yet. Both oil majors beat on earnings last week, but both reported profit declines — Exxon's net income was down 45% and Chevron's down 36% — because production is off.

The 10-year Treasury yield jumped nearly 9 basis points to 4.46% — highest this month. When yields run up on a war headline, it means the bond market is pricing in more inflation, not more growth. Higher oil means higher gasoline, higher shipping, higher everything. That feeds straight into the PCE number the Fed just told you is already at 3.2%.

The weekend had one other piece of news worth mentioning. Berkshire Hathaway held its annual meeting on Saturday — the first one run by Greg Abel instead of Warren Buffett. Abel was steady. The reviews were positive. But the line that matters came from Buffett himself. Berkshire is sitting on $373 billion in cash and short-term Treasuries. Buffett told CNBC: "If there is a big decline, we will deploy capital." The key word is "big." He said the 2026 pullback so far "is nothing." The most disciplined investor in history is looking at this market — at record highs, at 21 times forward earnings — and choosing to do nothing.

Stocks don't price today. They price the next six to twelve months. And what got priced today was the end of the peace trade.

For the past two weeks, the market was pricing in a ceasefire that holds. Oil eased from $115 to $102 on Friday after Iran sent a proposal through Pakistani mediators. Rate-cut odds ticked up. Small caps rallied. The whole April run — best month since 2020 — was built on the assumption that the worst of the war was behind us.

This morning that assumption got tested. Iran didn't just fire at ships in the Strait. It fired at the UAE. At a port. At the one piece of infrastructure that was supposed to work even if the Strait stayed closed. Israel put its army on high alert. Bahrain declared a state of alert. The U.S. military destroyed six Iranian boats. Iran warned it would attack any American warship that comes near the Strait. That's not a ceasefire. That's a war that's spreading.

Here's what that means for the market's math. Oil at $106 WTI and $114 Brent feeds directly into the inflation numbers. Yesterday's PCE was already at 3.2% core. Add another $10 to $15 on the barrel and the second-quarter PCE is going to run hotter than the first. When inflation runs hotter, the Fed can't cut. When the Fed can't cut, the rate-sensitive parts of the market — small caps, real estate, anything that needs to refinance debt — lose their bid. The Russell 2000 gave back its recent gains today. That's the first read.

I've seen this setup before. August 1990. Iraq invaded Kuwait on a Thursday morning. The market had been grinding higher on the back of a strong earnings cycle. Oil went from $21 to $40 in two months. The S&P gave back 17% in seven weeks. The parallel isn't the size of the move — it's the timing. A market that prices for peace and then gets war tends to give back faster than the run that built the rally. Not all of it. But enough to test anyone who bought the top.

The catch: the earnings are better now than they were in 1990. Eighty percent beat rates. Thirty-one percent EPS growth. Nine of eleven sectors in double digits. If the earnings hold and the war stays contained to the Gulf, this pullback is a buying opportunity. If the war spreads — if Iran hits a tanker, if the Strait stays closed through the summer — the earnings won't be enough to hold a market at 21 times.

Buffett is watching. He's comfortable doing nothing. That should tell you something about the price.

Three things I'm watching:

AMD reports after the bell. HSBC downgraded the stock Friday on concerns about tight semiconductor capacity in 2026. The question is whether AMD's data center revenue holds above $5 billion — that's the line that proves AI chip demand is broad and not just an Nvidia story. If AMD disappoints, the chip sector's 20-day rally gets tested against a war tape. Palantir reports tonight and Arm reports Wednesday — the whole AI supply chain faces the tape this week.

The jobs number takes on new weight after today. If the labor market is still tight — claims last week were at 189,000, lowest since 1969 — the Fed has no room to cut into an oil shock. Watch wages. March hourly earnings grew 3.5%, the lowest since 2021. If April comes in under 3.6%, the market gets one more reason to believe a cut is coming. Above 4% and the rate-cut trade that powered last week's rally is dead for the summer.

This is the one that matters most. Israel is on high alert. Bahrain is on alert. Iran has warned it will fire on U.S. warships. If the next 48 hours bring a second round of strikes or a direct hit on a tanker, Brent goes to $120 and the market gives back more of April's gains. If Trump and Iran go back to the mediators in Pakistan and the alerts stand down, oil comes back in and Friday's record looks like a floor rather than a top.

April was the best month in five years. May just opened with missiles. The market still has the earnings to lean on — but the margin for error just got a lot thinner.

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