Fear of stagflation is sweeping through global markets — and investors are moving their money accordingly, Bloomberg reports.

As the conflict involving Iran deepens and President Donald Trump signals the possibility of wider military strikes, traders are abandoning risk assets and repositioning portfolios for a world where economic growth slows even as inflation surges.

The shift has already erased roughly $6 trillion in global equity value since the war began.

“The pendulum is swinging toward panic,” said Danny Wong, chief executive officer of Areca Capital. “There is a stampede to sell or pare all kinds of risk assets.”

Markets had initially treated the conflict as a short-lived geopolitical flare-up. That assumption began to unravel after Trump suggested the U.S. could consider striking additional Iranian targets while Tehran vowed not to back down.

Trump also signaled Washington may tolerate higher energy prices if the conflict expands, saying $100 oil would be “a very small price to pay” for “safety and peace.”

For investors, that comment underscored a growing reality: energy prices could remain elevated for some time.

“The challenge is the stagflationary nature of the shock,” said Rajeev de Mello, a global macro portfolio manager at Gama Asset Management. “Investors have had to increase their probability of the worst-case scenario.”

Markets Sell First

The reaction across global markets has been swift and broad.

Stocks across Asia tumbled as much as 5.6%, their steepest drop in months, while European markets slid and volatility gauges jumped. Trading volumes surged as investors rushed to unwind positions.

Bond markets have also come under pressure as traders rethink the path of central bank policy in an environment where inflation could surge again.

“The market is selling off across the board today, regardless of size or style,” said Taku Ito, chief portfolio manager at Nissay Asset Management.

“If inflation persists while labor demand weakens, a U.S. recession would become inevitable,” Ito said. “For equity markets, that would mean the game is up.”

Credit markets are also showing signs of stress. The cost of protecting against defaults by high-grade companies has risen sharply across Europe and Asia, while a global investment-grade credit index has erased nearly all of its gains for the year.

The turmoil is also triggering major capital outflows from emerging markets. Foreign investors pulled $14.2 billion from Asian stocks excluding China last week, the largest withdrawal since at least 2009.

Where the Money Is Going

As investors dump stocks and credit, capital is quickly concentrating in a handful of trades seen as winners in a stagflation environment.

At the top of that list: energy.

Crude surged toward $120 a barrel, with Brent swinging nearly 29% intraday, one of the largest price moves in years. Energy stocks rallied as investors sought exposure to what many now see as the most direct hedge against geopolitical turmoil.

“Oil is the ignition point,” said Nigel Green, chief executive officer of financial advisory firm deVere Group. “Energy security has suddenly become the defining macroeconomic issue again.”

The U.S. dollar is also drawing strong inflows as investors seek liquidity and safety during the turmoil. The Bloomberg Dollar Spot Index climbed as global funds rotated into the world’s dominant reserve currency.

Cash positions are rising too.

“The current situation is being dominated by emotions such as fear and disbelief,” said Hironori Akizawa, a fund manager at Tokio Marine Asset Management. “I am raising cash levels.”

Some portfolio managers say the investment playbook increasingly resembles that of the 1970s — favoring commodities, energy and defensive assets over growth stocks and long-duration investments.

“When markets encounter a black swan, everything can fall at the same time,” said Anna Wu, a cross-asset strategist at Van Eck Associates. “That’s what we’re seeing today — selling across equities, bonds and currencies, except for oil and the dollar.”

Panic or Reality?

For now, markets appear to be pricing in a prolonged conflict and a sustained disruption to global energy supplies.

Attacks on energy infrastructure have raised fears of a lasting supply shock, particularly given the region’s critical role in global oil and liquefied natural gas shipments through the Strait of Hormuz.

Rising energy costs are already forcing investors to rethink expectations for central banks.

Expectations for Federal Reserve rate cuts have been pushed back sharply, with some options traders now betting the Fed may not cut rates at all this year if inflation remains elevated.

Still, some investors say the speed of the selloff suggests markets may be reacting emotionally as much as rationally.

“I thought I was going to get some sleep this week, but not anymore,” said Matthew Haupt, a hedge fund manager at Wilson Asset Management.

“Investors are now bracing for a long winter,” he said. “The risks are firmly placed to the downside from here with no clear timeline for an end.”