As War Erupts, "Let's Get Out Fast": U.S. Stocks Plunge as $18.5 Billion Floods into MMFs in a Day

U.S. MMF Assets Surpass $8.2 Trillion;
$18.5 Billion Inflows in a Single Day


Divergent Views Among Leading Economists
Concerns Grow Over 'Stagflation' if War Prolongs

Assets in U.S. money market funds (MMFs) have surpassed $8.2 trillion (approximately 1,196.7 trillion KRW). This is attributed to a heightened preference for safe-haven assets due to the ongoing war between the United States and Iran. As market recovery remains a key concern among investors, leading global economists have expressed worries about mounting stagflationary pressures if the war drags on.

According to Bloomberg News, which cited Crane Data LLC, the size of U.S. MMFs reached $8.271 trillion as of March 4 (local time). In particular, amid growing uncertainty from the conflict between the United States and Iran, $18.5 billion flowed into MMFs in a single day on March 3. For the year to date, a total of $162 billion has moved into MMFs. MMFs invest in ultra-short-term government bonds or commercial paper (CP) and are considered prime cash-equivalent investment vehicles due to their high stability and liquidity.

Bloomberg explained that rapidly unfolding conflicts across the Middle East are driving a stronger preference for cash and other safe-haven assets. Jan Nevruzi, a strategist at TD Securities, pointed to the recent decline in U.S. Treasury yields, stating, "There has definitely been a move to secure liquidity," and went on to add, "We need to watch how much longer these capital flows continue." Deborah Cunningham, Global Chief Investment Officer for Liquidity Markets at Federated Hermes, said, "We must not forget the uncertainties surrounding the Federal Reserve's future policy, the U.S. economy, and broader geopolitics," explaining that "such overall negative sentiment often pushes investors toward safer assets."

Amid this increasing preference for safe-haven assets, economic experts have presented differing outlooks. Paul Krugman, Nobel laureate and professor at the City University of New York, predicted that the ongoing conflict between the United States and Iran would not cause shocks on the scale of the 1970s oil crisis. However, he cautioned that the current stock market is much closer to a bubble than it was in 1979, leaving it more vulnerable to geopolitical shocks. Krugman noted, "The price-to-earnings (P/E) ratio of the S&P 500 was low in 1978, but it is extremely high now."

He further emphasized that Iran's possession of missiles and drones poses a real threat to the Strait of Hormuz, a new risk that did not exist in 1979. He also noted that the financial system has been weakened by the private credit bubble, which could become another major risk factor. Krugman voiced concern, saying, "People are responding too complacently to the economic risks posed by this war."

Some forecasts suggest that while the current war may increase market volatility in the short term, its long-term impact could be limited. Steve Eisman, famous for his role in "The Big Short," said in a recent interview with CNBC that he will not change his investment strategy due to the United States-Iran conflict, emphasizing, "I will not change a single trade." He added that although the market is currently reacting with a short-term increase in oil prices, if the situation stabilizes, prices could return to previous levels within two months.

However, if the war drags on, it is expected to have a negative effect on the markets. Mohamed El-Erian, advisor to Allianz Group, told CNBC that the conflict in the Middle East could deliver another negative shock to the global economy. He warned, "The longer and more widespread the conflict becomes, the greater the stagflationary pressure on the world economy." In other words, a situation could arise where inflation persists even as economic growth remains sluggish.

This content was produced with the assistance of AI translation services.