All eyes will be on the Middle East this week following the weekend's U.S. and Israeli strikes on Iran, which killed Iran's Supreme Leader Ayatollah Ali Khamenei, along with other top leaders.

So far, in the early stages, the campaign appears to be going well. But Iran continues to fire missiles at an array of countries that house U.S. military bases. (And the report of U.S. casualties, underscores the real danger that Iran still poses.) The Middle Eastern countries being targeted have condemned Iran's actions, which has helped reduce fears of a widening Middle East conflict. But there's still plenty of uncertainty as the campaign is expected to last for weeks.

As for the markets, there are a few things to watch.

1) What happens to the price of oil given that production and transportation is being disrupted? While Iranian oil is sanctioned, it still finds its way to buyers (mostly China). That supply will likely be choked off even more.

2) How long will the strikes last? Will the Iranian Revolutionary Guard Corps (IRGC), which was created to protect Iran's leadership and enforce its doctrine, escalate tensions further, or move to de-escalate? Do they ultimately pledge to help transition the new Iranian government, and thus hasten the end of the conflict, or do they fight to the very end?

3) What happens in the aftermath of the regime change? Who will lead Iran going forward? Do the Iranian people rise up and take back their government, and return it to secular governance, like it was before it was overthrown in 1979? Or does it remain in theocratic control, with either better or worse leaders? Or does it emerge as something in between, such as a military-led council, a technocratic caretaker in the interim, or other?

The situation is very fluid, with lots of unanswered questions, which foments uncertainty. The sooner things can stabilize, the better it should be for the market.

In other news, Friday morning's Producer Price Index (PPI), wholesale inflation report, came in a bit hotter-than-expected on the m/m numbers, but nevertheless showed inflation easing on a y/y basis. The headline numbers were up 0.5% m/m, in line with last month's 0.5% pace and above views for 0.4%, while the y/y rate eased to 2.9% from last month's 3.0%, but above estimates for 2.8%. The core rate (ex-food & energy) was up 0.8% m/m vs. last month's 0.4% and forecast for 0.3%. The y/y rate, however, eased to 3.6% vs. last month's 3.7%.

While the market on Friday was still seeing carryover selling following NVIDIA's post-earnings (albeit stellar earnings) selloff on Thursday, new AI fears gripped the market after Block announced they would be laying off more than 4,000 employees or about 40% of their workforce, spooking investors that AI will displace workers.

Separately, Pakistan declared "open war" with Afghanistan on Friday, exacerbating already rising tensions in the Middle East.

When futures opened on Sunday evening, the S&P was down about -1.00%.

The big question is what happens when the regular session opens? Will there be a sense of relief that things appear to be going better than expected? Or will so much uncertainty weigh on the market?

We will know soon enough.

I should also note that one day's price reaction, whether good or bad, is just that. And things can change.

See you tomorrow,