UMBF UMB Financial Corporation

UMB Financial Corporation (Nasdaq:UMBF) Chief Investment Office Bill Greiner releases the following economic and market outlook for 2006. General Forecast During 2005, the equity market faced two headwinds, rising interest rates and slowing corporate profit growth rates. However, the economy continued a remarkable above-trend run this past year. In 2006 we believe the U.S. economy will grow roughly "at trend," with the markets reflecting choppiness in the economic outlook. By the end of the year, many markets could be considering the possibility of the economy falling into recession. 2006 Outlook -- U.S. Economy As is typical with annual market cycles, we believe the economy during 2006 will be subjected to many cross-currents. From a positive standpoint, the U.S. economy is a very diverse, resilient engine. Our bottom-line concerning the U.S. equity market is positive, but not spectacular. Look for the market to generate positive returns during 2006, but the road may be rocky. We expect price gains for the year in the mid-to-high single digit range. If our outlook for the macro environment is reasonably accurate, it may be safe to assume the following concerning activity within the U.S. equity market during 2006: -- The current "bull" market is aged by historical standards. It has been more than three years since the market has had more than a 20-percent decline. -- Earnings momentum has been decelerating since 2004. We expect the same in 2006. -- All eyes are currently on the Fed. Are interest rates going to rise more than another .5 percent? We believe the market is "pricing" short rates to move up to that level. -- From a cycle standpoint, the 2nd year of a Presidential term tends to be the weakest of the four-year cycle. If history holds, look for the equity market to be challenged until sometime in the summer, after which a strong rally may ensue. Consumer Spending As the consumer represents close to 70 percent of U.S. economic power, this variable is critical. Housing is a swing factor that effects not only current economic activity directly, but also impacts overall consumer sentiment and the willingness of the consumer to spend extra capital. The U.S. housing market's reaction to higher interest rates will be of particular risk to consumer sentiment and ultimately to the magnitude of the contraction in consumer spending. One theme of our economic outlook is centered on consumer discretionary spending slowing, driven by a slowdown in the housing market coupled with oil prices remaining "sticky" on the upside. These negative trends should be partially offset by continued improvements in the employment picture. We expect steady, if not unspectacular consumer spending in 2006. Capital Spending The flip-side to this rather dour view of top-line demand growth is capital spending. We expect corporate profits (as measured by S&P 500) will grow "at trend" -- 6 to 8 percent. Factors which have led to capital spending increases over the last number of years are still in place. These factors include: -- Low cost of capital. While rising, interest rates are still low relative to recent economic memory. -- High profitability. Cash-flow profitability is currently double that of the historical norm. -- Rising productivity. Most corporate leaders have come to the realization that capital spending holds the key to rising productivity levels within their companies. -- Need to stay competitive. Many organizations are raising capital spending rates, simply due to the view that competitors are doing the same. The need to stay competitive and protect profit margins is intense. -- Strong balance sheets. Overall, corporate balance sheets are unlevered and highly liquid, based on historical norms. Consequently, companies have the need and the ability to raise capital spending rates. Our outlook calls for nonresidential-fixed investment to rise by 9 percent during 2006, as compared to a growth rate of 3 percent for the overall economy. Capital spending, and companies that cater to that trend, may help drive corporate profits during 2006. Exports We expect exports to show strong growth during 2006. Our expectation is for exports to grow by roughly 7 percent during 2006, compared to 5 percent growth during 2005. Many areas of the world continue to grow more rapidly than the U.S., and we expect that trend to continue. Several of our trading partners are growing nicely and others are stabilizing. Japan's economy, for example, appears to be coming out of the economic quagmire they have been in since the early 1990s. Some European economies appear to be slowing and attempting to revive. If these trends continue, this will benefit the U.S. due to rising demand from these large trading partners, and subsequent export growth. Conclusion All of the above leads to the conclusion that earnings growth during 2006 should come in "at trend." The positive effects to top-line growth from rising capital spending and improved export demand should be partially offset by a contraction in the growth rate of consumer discretionary expenditure. Look for S&P 500 earnings to grow in the 6 to 8 percent range. Bill Greiner is chief investment officer of UMB Financial Corporation's Asset Management Division is Kansas City, Mo. He has spent his entire career in the investment field, with more than 25 years investment management experience. Greiner most recently was named Business Week's "Fearless Forecaster: 2005 Stock Market Strategist of the Year" in December 2005. He received this distinction by being the investment strategist who most accurately forecasted where the U.S. markets would end up at the close of 2005. UMB Financial Corporation (Nasdaq:UMBF) is a multi-bank holding company headquartered in Kansas City, Mo., offering complete banking and related financial services to both individual and business customers. Its banking subsidiaries own and operate 140 banking centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. Subsidiaries of the holding company and the lead bank, UMB Bank, n.a., include an investment services group based in Milwaukee, Wisconsin, a trust management company in South Dakota, and single-purpose companies that deal with brokerage services, consulting services and insurance. UMB was named one of Business Week's "Web Smart 50" companies in 2005. UMB Investment Advisors is a division within UMB Bank, n.a., that manages active portfolios for employee benefit plans, endowments and foundations, fiduciary accounts, and individuals. UMB Bank, n.a., is an affiliate within the UMB Financial Corporation. Securities and investment products are: Not FDIC Insured -- May Lose Value -- No Bank Guarantee (BOXED) The opinions and forecasts are based on information and sources of information deemed to be reliable, but UMB Investment Advisors does not warrant the accuracy of the information that this opinion and forecast is based upon. Further, the information and opinions contained within this report is subject to change at any time without notice and should not be construed as investment advice or recommendation of any specific security. The opinions and forecasts indicated within the report might not come to pass.