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Q&A With… Eric Kelley, UMB Chief Investment Officer

Chief Investment Officer for UMB Bank, Eric Kelley. Photo Credit: UMB.

Posted July 18, 2024

"The election, the economy and the markets could all be relatively volatile in the latter half of the year. Remember that wealth management is a long-term project and don't get caught up in your emotions when the news cycle gets choppy."

Updated at 3:20 p.m., July 19, 2024

Q: For a year that began with some apprehension about a looming recession, 2023 proved quite kind to investors. What, in your opinion, were the drivers of better-than-average returns for those with diversified portfolios?

A: The economy rode a powerful wave of household consumption, fueled by trillions of dollars in excess savings that accumulated from the Covid stimulus. These excess savings helped forestall the recession everyone expected.

Q: Are there elements within that overall growth that you don’t see as sustainable in the near term?

A: The heavy consumption that has been driving growth is likely to taper off — excess savings from COVID appear to be depleted and the labor market is softening.

Q: What do you see as cautionary signs for investors, particularly among the HNW and UHNW class?

A: As labor conditions cool off, it’s hard to keep unemployment from rising rapidly. Historically we’ve had to endure some economic slowdown once unemployment starts rising (as it is doing right now). We wouldn’t be surprised to see a couple of quarters of well below-average economic activity in the upcoming year. This could lead to volatility in equity prices. It’s been a long time since we’ve had a strong pullback in equity prices, and some would say we are overdue.

Q: Rates for 10-year T-bills declined about 42 basis points for the year; was the run-up to higher rates heading into 2023 strong enough to encourage significant movement from investors into fixed-income instruments?

A: It pulled some investors back into the bond markets. 5% returns on government-guaranteed assets is something we haven’t seen in a very long time. We encouraged our clients to move back to full fixed-income targets last year.

Q: Given that higher-level investors aren’t as reliant on home values as investment tools, what’s your assessment of how the run-up in mortgage rates and home prices have altered the calculations those investors must make in considering residential real estate as part of their overall portfolio?

A: The primary residence shouldn’t be considered as part of your investment portfolio. It’s not a “liquid asset” and likely not something you’re willing to sell in order to rebalance your risk profile.

Q: Any issues we haven’t flagged here that should be of note to investors at mid-point 2024

A: The election, the economy and the markets could all be relatively volatile in the latter half of the year. Remember that wealth management is a long-term project and don’t get caught up in your emotions when the news cycle gets choppy. Stay calm and stick to your long-term plans.