By Suzanne McGee
Traders wait for the Fed rate announcement on the floor of the New
York Stock Exchange (NYSE) in New York City, U.S., March 18, 2026.
REUTERS/Brendan McDermid
(Reuters) - As the Iran conflict intensifies, the spike in oil prices
and rising inflation fears are spurring investors to ditch stocks as
too risky and shun traditional safe havens such as gold in favor of
money market funds.
The
result: assets in those ultra-short-term and ultra-safe Treasury funds
are now hovering around $8 trillion, according to calculations from
providers such as the Investment Company Institute, JPMorgan Chase and
Crane Data, which specializes in tracking money market flows.
While their methodology varies and precise calculations range from $7.8
trillion to $8.1 trillion, the sources agree that assets have hit a
record amid the conflict.
"When
you have times of dislocation and times of fear, cash is the only thing
that makes sense to a lot of people, because there's the belief that
you 'can't lose' by holding it," said Malcolm Polley, director of
strategic market analysis with Stratos Investment Management, a wealth
management firm. He added that he is reassuring some of his clients
that "the world is not coming to an end just yet."
"This
is the 'wait-and-see' money coming from investors who are wary about
what's happening right now," said Sweta Singh, founding partner at
money management firm City Different Investments.
The latest catalyst for the steady flow of assets into money market funds is the impact of soaring crude oil prices
on the economy and inflation. Brent crude futures rose 1.2% on Thursday
to $108.65 a barrel, after trading as much as 10% higher during the
day.
"Gold,
silver and currencies are increasingly being driven by oil" prices,
said Steven Wieting, co-founder of CIO Group, a wealth management firm.
"As all risk assets take on this uncertain path, dependent on oil, it
is natural for cash to build on the sidelines."
The
longer prices linger at lofty levels, the greater toll they will take
on everything from consumer spending to corporate earnings, market
strategists are cautioning investors.
“There are few places to hide from this near-term supply shock,” analysts at the BlackRock (BLK.N) Investment
Institute wrote in a client note published on Monday. “Government bonds
and gold are not providing ballast as equities fall." Treasuries are no
safe haven
either, given the potential for inflation to climb further and
already-high government debt to rise as the cost of conducting the war
mounts.
"The
elephant in the room is stagflation," said Jacob Taurel, managing
partner at Activest Wealth Management, adding that he believes this
combination of inflation and stagnant or negative growth is "a real
risk."
To
some, that offers a great case for putting money to one side in a
product that currently offers yields north of 3% and, in a handful of
cases, approaching 4%, depending on the financial institution. In the
first few days of the Iran war, Deborah Cunningham, chief investment
officer of global liquidity markets at Federated Hermes, said in an
analysis published earlier this month that the "collective negative vibe
often sends investors to safer harbors," a category she told Reuters
includes money market funds.
Cunningham told Reuters she pegs the size of that cash mountain in money markets at $8.3 trillion.
Financial
advisors, however, are cautioning their clients about being carried
away by their risk aversion and putting too much money into money
market funds.
"The
problem with going to cash is that you have to make two separate
decisions correctly: when to get into cash and when to move back into
other assets," said Polley.
"When people are scared, they can be irrational."
Reporting by Suzanne McGee in Providence, Rhode Island; Editing by Stephen Coates
This week on Reuters
