The April ceasefire made it all the way to June. That is the good news. Then Israel and Iran exchanged direct military strikes Monday morning, and the market took it personally. WTI crude exploded 4.5% to $94.59, Brent spiked to $97.60, the Nasdaq dropped 4.2% to 25,709, and the S&P 500 closed at 7,383, down 2.6%. The Russell 2000 fell 3.5% to 2,833, small caps are the canaries of domestic credit, and right now they are canaries with a cough. The Dow lost only 1.3%, the defensive rotation already done before the open even printed.

Gold fell 0.5% to $4,317. On a day with active military exchanges in the Middle East. The dollar was flat. The 10-year yield climbed to 4.54%, up 5.9 bps, on a day when equities fell 2.6%. That is the stagflation fingerprint: oil up, yields up, equities and bonds both down, gold sitting on its hands. The disinflation trade that pushed the S&P above 7,600 is over. The repricing has started. It has not finished.

Brent crude hit $97.60 in the immediate aftermath of the strikes. The Philadelphia Semiconductor Index had already shed over $1 trillion in value last week before this hit. S&P futures are up 0.3% pre-market because hope, apparently, never reads the overnight session. The KOSPI just collapsed 8.3% on the same news. Industrial Production at 9:15 AM ET is today's calendar event. The real swing factor is the Middle East: oil above $93 means the inflation-shock narrative wins and the futures bounce is a gift to sell into.

XLE is the only sector with a structural earnings tailwind today. WTI at $94.59 with active conflict near the Strait of Hormuz is not a spike, it is a repricing. Energy earnings estimates have not caught up to the new price regime yet. The conditional: XLE holds above its opening print by 10:30 AM and WTI stays above $92. If a verified ceasefire emerges before noon, the war premium collapses fast. Pick your scenario before 9:30 AM, not after.

IWM is the exposure to reduce. The Russell's 3.5% drop is not noise: it is rate-sensitivity and domestic leverage registering a formal complaint. The 10-year at 4.54% and rising is the ceiling on a small-cap recovery. The rate-cut timeline the small-cap bull case needed just got pushed out by an inflationary energy shock. The relief rally thesis from earlier this year is broken for now.

TLT is a trap. Yields rose alongside the equity selloff, the classic stagflation signature. Treasuries are not the safe haven here because the shock is inflationary, not deflationary. Short-duration vehicles like SHY or SGOV are the cover if you need fixed income. GLD is the most important data point in this report: gold's failure to rally on direct military exchanges in the Middle East tells you the bid is not structural. Re-entry only above $4,350 on confirmed escalation. Below $4,280, the selling is not a dip.