October 2024 Newsletter

Dear friends,

As we move into the final quarter of 2024, we continue to evaluate how the recent Federal Reserve rate cuts are affecting the stock and bond markets and how geopolitical tensions and supply chain issues are adding complexity to global markets. We hope you had a wonderful summer and, as always, please feel free to reach out with any questions or concerns you may have.

By, Jaysen Bohrod, CFA

The Fed Funds Rate and Its Effects on the Economy

The federal funds rate is the interest rate at which banks lend reserve balances to other banks overnight. It is a very important tool that the Federal Reserve uses to control monetary policy in the United States, and impacts a wide range of other interest rates across the economy. This includes the rates you pay on credit cards, personal loans, mortgages and interest you receive in savings accounts.

The most direct effect of changes in the fed funds rate is on short term interest rates. Banks rely on overnight funding to maintain reserve balances and the cost of that funding is tied to the fed funds rate. When the Federal Reserve changes the rate, it affects the costs the banks have on these loans, and in turn, the rates that they charge customers to borrow money.

The fed funds rate indirectly affects long term interest rates in addition to shorter term rates. When the Fed changes the fed funds rate, it affects the outlook for economic growth and inflation, which in turn, affects investors demand for bonds. If the Fed raises the fed funds rate, it signals that there are concerns of inflation rising or an overheating economy and will prompt bond yields to rise. Investors will demand higher returns on bonds to protect against inflation and banks will pass their increased costs in the form of higher loan rates, which includes personal loans and mortgages. In contrast, if the Fed lowers the fed funds rate, it becomes cheaper for banks to maintain reserves, lowering borrowing costs for consumers. It also leads to lower yields on Treasury bonds, which allows lenders to offer lower rates on loans like fixed mortgages.

Changes in the fed funds rate has significant effects on the stock market as well. When interest rates rise, it becomes more expensive for companies to borrow money to finance operations. Higher borrowing costs means that more revenue is allocated to paying down debt, which can lead to investors adjusting expectations for growth and profitability. Conversely, when rates decrease, companies get a boost to profits by reducing the cost of debt and growth expectations rise.

Discounted cash flow (DCF) models are commonly used by investors to estimate the value of a company. In a DCF model, future cash flows are discounted back to a present value using a discount rate that is influenced by the prevailing interest rates. As interest rates rise, the discount rate increases, reducing the present value of the future cash flows and the intrinsic value of the stock. When interest rates fall, a lower discount rate is used, which will give the future cash flows a higher present value and increase the intrinsic value of the stock.

While there are many factors that affect interest rates directly or indirectly, the fed funds rate is a major component in determining borrowing costs.

NUMBERS TALK

US national debt……………………………………..………………………………............................………..$35.691T
Annual interest accrued on national debt………………………………………………..........….....…….$964B
Total dollar amount owed in Federal and Private Student Loans..…………..………………….$1.74T
Percentage of new car sales that are expected to be EVs in 2024 in the US…………..….……~8%
Global equity market value………………………………………………………….................…..…….....…..$116.4T
US Federal debt to GDP ratio……………………………………………………….............……............…….124.32%

Charles Schwab has a New Mailing Address

Regular Mail:

Charles Schwab
P.O. Box 2380
Omaha, NE 68103

FedEx/UPS:

Charles Schwab
200 S 108^th Ave.
Omaha, NE 68154

Client Online RMD Center

You can now check your RMD status online at www.schwaballiance.com.

Click on the “Accounts” tab, then the “Take My RMD” Sub-Tab.

Qualified Charitable Distributions

If you are 70 ½ or older and donate to qualified charities, you can make a Qualified Charitable Distribution (QCD) directly from your IRA. If you are 73 or older and have a Required Minimum Distribution (RMD), the QCD donation can count towards your RMD, but not as taxable income. The important thing to remember is that the QCD must occur first each year, before any additional RMDs or other distributions. The donation must also be paid directly from your IRA to the charity to qualify as a QCD. Keep your donation receipts and be sure to let your accountant know it was a QCD. If you would like to take a QCD, please contact Pegasus.

Holidays / Office Closed

November 28^th & 29^th

December 25^th

January 1^st & 20^th

Schwab Alliance

schwaballiance.com/
Schwab Mobile App
1-800-515-2157

Secure, online access to your accounts is easy, visit the Schwab Alliance website or Schwab Mobile App to view account balances & transactions, access tax documents, open new accounts, and more.

Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Pegasus Asset Management, Inc. [“Pegasus]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Pegasus. No amount of prior experience or success should not be construed that a certain level of results or satisfaction if Pegasus is engaged, or continues to be engaged, to provide investment advisory services. Pegasus is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of the Pegasus’ current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.pegasusassetmgt.com. Please Remember: If you are a Pegasus client, please contact Pegasus, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your Pegasus account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Pegasus accounts; and, (3) a description of each comparative benchmark/index is available upon request.