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July Outlook by the Numbers

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Do you have questions on the housing market, labor market and interest rates? Check out UMB Investment Management team’s July 2017 Outlook by the Numbers for a quick snapshot on these and other economic drivers.

Also, be sure to review the following articles for more market and wealth management information…

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Follow UMB‡ on LinkedIn to stay informed of the latest economic trends.

 Interested in learning more about our Private Wealth Management division? See what we mean when we say, “Your story is our focus.


UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.



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Active, Passive or Complementary Investing?

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Most of the debate around passive versus active investing comes from those advocating for one approach over the other. We, on the other hand, believe they are complementary and not mutually exclusive. Based on our research, neither an all-passive, nor all-active portfolio, is the optimized portfolio. Rather, optimal appears somewhere in the middle. Blending both active and passive investing strategies can provide a more attractive risk-return profile.

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Read our full perspective by clicking here or learn more about our Private Wealth Management division. See what we mean when we say, “Your story is our focus.


K.C. Mathews joined UMB in 2002. As executive vice president and chief investment officer, Mr. Mathews is responsible for the development, execution and oversight of UMB’s investment strategy. He is chairman of the Trust Investment, Asset Allocation and Trust Policy Committees. Mr. Mathews has more than 20 years of diverse experience in the investment industry. Prior to joining UMB, he served as vice president and manager of the portfolio management group at Bank of Oklahoma for nine years. Mr. Mathews earned a bachelor’s degree from the University of Minnesota and a master’s degree in business administration from the University of Notre Dame. Mr. Mathews attended the ABA National Trust School at Northwestern University and is a Chartered Financial Analyst and member of the CFA Institute. He is past president of the Kansas City CFA Society and a past president of the Oklahoma Society of Financial Analysts.



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A Look at Mariner Kemper’s Office Art Collection

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What kind of art do you think President and CEO Mariner Kemper keeps in his office? Take a look at the fun and historical art adorning the walls of his bank office in this Denver Business Journal  report by Monica Mendoza.

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UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.



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Corporate Earnings and Fidget Spinners

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What do corporate profits and fidget spinners have in common?

Happiness.

While parents may never understand fidget spinners, kids sure love them. Trendy toys make kids happy, even if we don’t understand the intrigue. While we expect fidget spinner fascination to wane and follow the path of prior fads, such as the pet rock, Furbys and silly bands, we expect the opposite of corporate earnings.

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We believe corporate earnings are moving to trend status and have the staying power to grow for the next eight quarters. And this will translate to happiness in the market. Stock markets do well when corporate earnings are stronger than expected, as earnings are the lifeblood of the market.

July 10 marks the unofficial start to second quarter earnings season, and we expect earnings growth momentum to continue based on the following data.

Shift from Earnings Recession to Earnings Expansion

Beginning in the fourth quarter of 2014, corporate earnings evaporated, starting an earnings recession that lasted until the third quarter of 2016 when earnings finally posted a slightly positive gain.

The first quarter of 2017 recorded strong earnings growth of 17.8 percent and sales growth of 8.5 percent. Wage inflation, commodity costs, margins, and share repurchases boosted (and will continue to boost) earnings growth.

Additionally, easy year-over-year comparisons helped these numbers, as earnings declined 5.0 percent last year during the same time period.

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Industries We’re Watching

Technology and finance sectors are expected to have the highest growth rates among all S&P 500 sectors.

  • Strong demand for cloud-based services and cell phones are leading growth for technology.
  • In the finance sector, the recent increase in interest rates bode well for banks as expanding margins can make more profit on the money they lend out relative to their interest paid on deposits such as checking/savings accounts. Additionally, higher rates should help offset weaker than expected loan growth trends.

Key Drivers: A Look Ahead

Sustainable corporate earnings growth is driven by economic activity and GDP growth, and corporate earnings are highly correlated. Economic global growth continues to improve, with China and Europe’s economic data showing signs of green shoots, and we see a pick-up in domestic growth as well.

We expect second quarter earnings to increase eight percent and revenue growth to grow four percent.

Timing the Earnings Tailwind

The promise of fiscal stimulus is a tailwind for corporate earnings. Tax reform, reduced regulation and infrastructure spending have the potential to increase earnings by 10 to 15 percent.

However, there are two issues with fiscal stimulus. The first is timing—how quickly will things develop? Given current conditions, it appears this will be a 2018 event.

Secondly, fiscal stimulus has a short-term impact on economies and markets. Historically, when you are late in an economic cycle like we are now, fiscal stimulus is effective for only four or five quarters.

Therefore, while potential fiscal stimulus is positive for the long-term, investors will have to exercise some patience and understand that they may be shorter-lived when they are realized.

The Broader View

We have a positive view on the economy and expect GDP to grow at 2.2 percent in 2017. Over time, S&P 500 revenue growth has had a multiplier of 1.5 times GDP growth. This GDP multiplier, plus an expected rebound in oil, supports our 5 percent revenue growth for 2017.

All things considered, we believe the next few quarters of corporate earnings are going to be a trend that will bode well for the markets. Meanwhile, children will continue to play with their fidget spinners – or the next greatest fad – and everyone will be happy.

Follow UMB‡ and KC Mathews‡ on LinkedIn to stay informed of the latest economic trends.

Interested in learning more about our Private Wealth Management division? See what we mean when we say, “Your story is our focus.


K.C. Mathews is executive vice president and chief investment officer, Mr. Mathews is responsible for the development, execution and oversight of UMB’s investment strategy. He is chairman of the Trust Investment, Asset Allocation and Trust Policy Committees. Mr. Mathews earned a bachelor’s degree from the University of Minnesota and a master’s degree in business administration from the University of Notre Dame. Mr. Mathews attended the ABA National Trust School at Northwestern University and is a Chartered Financial Analyst and member of the CFA Institute.

Will Reese is a senior securities analyst for the Private Wealth Management division at UMB. He has an Bachelor of Science degree in psychology from the University of Kansas and a Master of Business Administration degree with an emphasis in finance from Avila University. In his role, Will monitors and maintains departmental equity working lists, recommends stocks for external clients, and provides equity research and analysis for internal customers.




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Summer InSight: Retirement, Cash Flow, Loans and the Economy

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Summertime marks the mid-point of the year, so now is a good time to take a moment to check in on your full financial picture, including a review of your goals and progress you’ve made toward milestones. Statistics show almost four million Americans anticipate retiring in the next 15 years, and there are key considerations that can help anyone prepare, whether retirement is right around the corner or 20 years away.

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We encourage everyone to have a solid plan for retirement, which begins with understanding your core numbers: anticipated age of retirement, how much income you’ll need to maintain your current lifestyle after retirement, and the value of your assets and cash savings. Having a clear picture of your current and future states makes establishing priorities simpler. Keeping these numbers in mind as you make other financial decisions ensures your goals and choices remain in alignment.

While retirement planning is critical for your future, there will always be plenty of present-day matters to attend to. This issue of InSight covers several topics related to life events and the economy. Beth Brown, senior vice president and senior wealth advisor, discusses steps to consider when you are faced with an unexpected financial windfall to help ensure your plan supports your objectives. Shelly Addington, vice president and private banking client manager, provides an educational construction loan overview, including what you can expect from the process from start to finish. And KC Mathews, UMB Bank executive vice president and chief investment officer, delivers an economic analysis that covers the impacts of political and policy shifts.

For more details on these and other financial matters, read the full Insight issue or visit our Private Wealth Management page.


Dana Abraham is president of the Personal Banking Division and is responsible for the delivery of comprehensive financial services. Her areas of focus include Wealth Planning, Private Banking, Personal Trust, Investment Management and Insurance. She joined UMB in 2005 and has more than 20 years of experience in the financial services industry. Abraham earned a bachelor’s degree in business administration with a concentration in both accounting and economics from the University of Louisiana. She is a graduate of Leadership Overland Park and Kansas City Tomorrow Leadership programs.



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Are you ready for retirement?

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It is anticipated that almost four million Americans will retire in the next 15 years, forcing many to face the question, “Am I ready for retirement?” As this growing number of Americans consider the next chapter in their lives, they are discovering a gap in their retirement plan.

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Retirement is one of the largest transitions a person will encounter in their lifetime, yet only one-third of Americans feel they are financially prepared. According to Mintel’s April 2017 Consumers and the Economic Outlook report, 11 percent of Americans nearing retirement age are preparing to look for new, higher-paying jobs as a way to improve their financial situation.

By proactively planning and establishing priorities in advance, individuals will be better equipped to have a successful transition into their golden years. Whether retirement is right around the corner or 20 years away, these key considerations can help establish a level-set for retirement preparation.

What’s your number?

First ask yourself “How much money do I need to live?” and “How much money do I have?” These questions can help establish a goal and define areas that should be closely analyzed. If financial gaps exist, assess and determine how to fill them.

It is important to consider the financial implications of several critical areas, including:

  • Average living expenses
  • Healthcare
  • Mortgage or rent
  • Property and other tax obligations
  • Charitable giving
  • Legacy considerations

How much and how long do you want to work?

Over the last 15 years, a shift has been taking place—it no longer has to be “all or nothing” when it comes to employment. More people are retiring in stages, or semi-retiring. Instead of completely stepping away from a career, they might transition out of a role slowly.

Additionally, many Americans are planning to work longer or stay involved in their businesses beyond what is considered traditional retirement. According to the latest data from the U.S. Bureau of Labor Statistics, almost 20 percent of Americans 65 and older are now working.

Think about where you would like to be on this spectrum to help determine when, and to what degree, your earning potential will change.

Establish priorities

If the priority is retirement, establish goals and create a plan first and foremost. Perform an in-depth analysis of the entire financial portfolio to assess total assets and decide if retirement goals are achievable. Determine if your portfolio assets can support your desired lifestyle during retirement. If a path to retirement is clear, then begin to think about secondary priorities; these could include leaving a legacy, charitable giving or the opportunity to travel more often. If the path to retirement isn’t clear or if financial assets come up short, consider putting off retirement for a few years, saving more money, adjusting an estimated living plan or reassessing assets.

Create a clear plan

Planning is the most important aspect of a successful transition into retirement. Planning early and reevaluating often is critical. One way to establish a sound financial plan is to work with a financial advisor, who can help you not only establish goals, but work to make them a reality.

Additionally, financial advisors can help counsel families where members may have different goals or considerations that need to be taken into account. They can help communicate each person’s unique goals and assist families in creating a shared plan that meets everyone’s needs.

Finally, they can also track your progress and help identify any changes you may need to make along the way.

For anyone considering retirement, asking the important questions, creating a strategic plan and consistently evaluating progress can help lead to a successful transition. Working with a financial advisor can alleviate questions and ensure that a plan is being considered from all angles, providing valuable support for this life transition.

Interested in learning more about our Private Wealth Management division? See what we mean when we say, “Your story is our focus.


Dana Abraham is president of the Personal Banking Division and is responsible for the delivery of comprehensive financial services. Her areas of focus include Wealth Planning, Private Banking, Personal Trust, Investment Management and Insurance. She joined UMB in 2005 and has more than 20 years of experience in the financial services industry. Abraham earned a bachelor’s degree in business administration with a concentration in both accounting and economics from the University of Louisiana. She is a graduate of Leadership Overland Park and Kansas City Tomorrow Leadership programs.



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Reality TV vs. reality — America is watching

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Reality TV has become popular, to say the least. Apparently we enjoy watching people be voted off islands, on the hunt for love and get fired on national television. Included in this group is our new president, who was the host of The Apprentice for a number of years.

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However, since the January inauguration, President Donald Trump is now faced with reality, which does not include retakes, professional editing and an audience who enjoys both failure and success.

But, his new job does include balancing an active audience’s perceptions and actual reality, particularly as it relates to the economy and some of his key initiatives.

Paradigm Shift

Trump has suggested a paradigm shift by stimulating economic growth through fiscal policy and government spending, rather than relying on monetary policy and lower interest rates. While economic fundamentals have been improving for several quarters, contributing to positive public perception, Trump’s proposed fiscal policy stimulus will have a relatively minor impact on long-term economic growth.

The empirical evidence suggests that when the economy is at full employment, any fiscal policy stimulus will have a temporary impact on growth, four to six quarters at best. In reality, fiscal policy stimulus does one thing on a long-term basis – it increases the national debt.

Tax Cuts

The president, along with others such as Treasury Secretary Steven Mnuchin, has suggested tax cuts will pay for themselves by boosting economic growth. Yet, there is no evidence to support this idea. Rather, historical reality suggests cutting taxes will increase the federal debt burden.

Former President Ronald Reagan in the early 1980s and former President George W. Bush in the early 2000s both cut taxes, yet there is little evidence that economic activity improved.  However, we do know the national debt mushroomed in both cases.

Repatriation of Foreign Profits

Believe it or not we have been here before. In 2004, the American Jobs Creation Act was passed. Part of the plan covered the repatriation of overseas profits at a reduced rate of 5.25 percent. In 2004, five companies, primarily pharmaceutical, dominated the almost $1 trillion foreign profit stockpile.

Only one-third of the total cash came back to the U.S. Most of the money went to repairing corporate balance sheets and rewarding shareholders with share repurchases. $18 billion did go into the U.S. Treasury’s coffer. The Congressional Research Service, a nonpartisan think tank, said the program was an ineffective means of increasing economic growth.

Today, the reality is that a small number of technology companies dominate the $2.5 trillion cash balances overseas. If offered a tax reprieve on repatriating foreign profits, history tells us the same behaviors will result—higher dividends and more share repurchases, which, I believe, will not materially impact the economy.

Multiplier Effect

The multiplier effect is a phenomenon where given a change in a particular input, such as government spending, a larger change in an output occurs, such as gross domestic product (GDP).

We are about to see a paradigm shift in the U.S.—moving from monetary policy stimulus (interest rates) to fiscal policy stimulus (government spending).

The million dollar question is, “Will it promote economic growth?” The Congressional Budget Office provides historical analysis on the efficacy of fiscal spending. The multipliers show that any form of increased government spending would have a higher multiplier effect than any form of tax cuts.

Economic Reality

There are two primary drivers of long-term economic growth, labor force growth rate and productive gains. Labor force growth rate in the U.S. is approximately 1.2 percent. Non-farm productivity year-over-year growth is 1.1 percent. Add them together, and you have a 2.3 percent trend GDP over the next few years. We could realize one or two quarters of 3.0 percent or greater GDP, but it’s not sustainable.

However, this is not a doomsday conclusion. If we do experience trend GDP between 2.0 and 2.5 percent, it will allow companies to grow revenues and earnings. This in turn will support higher stock prices.

Political Process Reality

Trump’s term has really just begun. And what many reality television enthusiasts, and the president himself, may be finding out is that reality TV can be fun to watch, but the reality of the political process may not be.

Follow UMB‡ and KC Mathews‡ on LinkedIn to stay informed of the latest economic trends. Read other recent commentary on umb.com.

Interested in learning more about our Private Wealth Management division? See what we mean when we say, “Your story is our focus.


K.C. Mathews joined UMB in 2002. As executive vice president and chief investment officer, Mr. Mathews is responsible for the development, execution and oversight of UMB’s investment strategy. He is chairman of the Trust Investment, Asset Allocation and Trust Policy Committees. Mr. Mathews has more than 20 years of diverse experience in the investment industry. Prior to joining UMB, he served as vice president and manager of the portfolio management group at Bank of Oklahoma for nine years. Mr. Mathews earned a bachelor’s degree from the University of Minnesota and a master’s degree in business administration from the University of Notre Dame. Mr. Mathews attended the ABA National Trust School at Northwestern University and is a Chartered Financial Analyst and member of the CFA Institute. He is past president of the Kansas City CFA Society and a past president of the Oklahoma Society of Financial Analysts.



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Monthly Media Update – May

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Insight into the changing healthcare landscape in Washington, the introduction of a new market president and a unique perspective on trends in the bond market are just a few media coverage highlights from our associates this past month.

Stay informed on industry trends and noteworthy company news by visiting our UMB in the News section on umb.com, which is updated weekly for timely viewing.

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UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.



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UMB Insights: Fine Art Services

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Are you an art collector? Or do you have one piece in your home you take great pride in? Find out from the managing director of UMB Fine Art Services how this company focus began more than 100 years ago with our CEO’s great grandmother, Charlotte Kemper, and her passion for culture and art. Jan also offers advice on how to protect and utilize your art and collectibles.

Read more about the art of fine art management.

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Jan Leonard is senior vice president and managing director for charitable trusts, private foundations and fine art services. She joined UMB in 2003 and has more than 25 years of experience in the management of private and public organizations. Leonard earned a bachelor’s degree from Arkansas Tech University and a master’s degree in business administration from Ottawa University in Ottawa, Kan. She is also a graduate of the Cannon School of Foundation Management.



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Is the Bond Market Wrong?

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After the surprise election results in 2016, domestic markets experienced the “Trump Bump,” which entailed a traditional risk-on shift—investors bought stocks and sold bonds to prepare for the presumed good times ahead. Stock values and interest rates both shot higher in anticipation of a boost to both economic activity and inflation.

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Trump Bump to Trump Slump

However, after a few months of treading water early in the New Year, interest rates began a steady decline. The 10-year Treasury note dropped from 2.60 percent to 2.25 percent in just a few weeks.

This occurred despite an early increase in overnight rates by the Federal Open Market Committee (FOMC) and clear messaging that they are prepared to continue the upward march in rates as part of a gradual “normalization.” All the while, stock prices remained resilient and repeatedly bumped up against all-time highs.

Debates and Head-Scratching

The drop in long-term rates created a flattening of the treasury yield curve, something that typically occurs near the end of a Fed tightening cycle, as the economy begins to slow down.

This rate drop and curve flattening has triggered a healthy debate throughout the

investment industry. It appears the bond market is signaling that the economy isn’t going to be nearly as strong as the equity market is discounting.

Historically, a flattening yield curve has been a strong, early indicator of economic deceleration—so the divergence between stock prices and interest rates has unleashed some serious head-scratching.

Disagreement Abounds

As a further complication, the Fed Funds futures market—the bond market’s estimate of where overnight rates are headed—is substantially below the FOMC’s estimates for where they’re planning to move rates. The FOMC expects overnight rates (and money market rates) to head to 1.50 percent in 2017 and rise to 2.20 percent in 2018, which is good news for savers. However, the futures market is placing overnight rates at only 1.25 percent and 1.50 percent in 2017 and 2018.

It appears that the bond market currently disagrees with both the FOMC and the stock market on the strength of the economy and the path of rates, raising the question, “Is the bond market wrong?”

Countering the Contrarian View

At this point, our answer is “yes, we believe the bond market is wrong.”  While it’s usually not fruitful to bet against the bond market, we believe several factors are causing it to paint a contrarian (versus the stock market) picture at this time:

  1. Assumption that the new administration will not get any stimulus plans enacted
    The bond market appears to be responding to the president’s early challenges with enacting campaign promises.
  2. Global interest rates
    Global interest rates are still well below the U.S. The glut of excess savings from around the world is still chasing U.S. rates whenever they rise, making it difficult for our rates to rise as much as they might otherwise.
  3. Normalization cycle
    Bond investors around the world are assuming the current Fed normalization cycle will play out in a similar manner to how the entire global financial crisis cycle has unwound—much slower than anyone anticipated. They are betting against any “upside surprises” for the economy or inflation, and it’s been a very long time since we’ve had either.
  4. Extreme caution in rising rates
    The bond market believes the FOMC will exhibit extreme caution in edging rates higher because it fears rising rates will tip the economy back toward a slowdown.The bond markets are not signaling that an economic slowdown is eminent, but rather that rate normalization will not be possible at the pace indicated by the Fed and most forecasters.

Why we believe the bond markets are wrong:

  1. We believe the new administration will succeed in enacting tax cuts and infrastructure programs—both will involve compromise and delays, but they will ultimately be accomplished, and both should point toward higher rates.
  2. We believe the global savings glut is in the very early stages of abating, so the artificial “lid” on interest rates may be slowly dissipating.
  3. While the last decade has been one of extremely slow movements from the Fed, it appears wage pressure is building throughout our economy—a precursor to inflation. Economic momentum is turning upward in Europe as well. These trends will allow the Fed to push forward with rate normalization at the pace reflected in most forecasts.
  4. Interest rates are exceptionally and unsustainably low, particularly given that we are experiencing a modest global upturn. Even after the Fed’s projected upward adjustments, interest rates will still be exceptionally low—modestly higher rates are not a threat to the economy or a barrier to normalization. For these reasons, we believe the bond markets are not properly reflecting the most likely path for interest rates over the next two years. There are risks to this outlook, but the most likely outcome is an upward shift of roughly 1.00-1.50 percent over the next two years.

Interested in learning more about our Private Wealth Management division? See what we mean when we say, “Your story is our focus.


Mr. Kelley is managing director of fixed income at UMB and is responsible for overseeing the product development and management of the fixed income holdings for the Wealth Management division. Mr. Kelley earned a Master’s of Business Administration from Baker University in Kansas City.



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