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Stocks finished the week on a positive note, with the Dow (INDEX: ^DJI  ) and the broader S&P 500 (INDEX: ^GSPC  ) gaining 0.4% and 0.5%, respectively. However, this week marks the Dow's fourth consecutive weekly decline; the S&P 500 also lost ground this week, as it has done in three of the past four weeks. The S&P 500 is now 7.2% below the high it achieved on September 14th.

The macro view: Two days ago, I highlighted a news item in this column according to which the iShares iBoxx High Yield Corporate Bond Fund (NYSEMKT: HYG  ) had suffered its largest daily redemption in the fund's 5-year history. Today, PIMCO's Bill Gross, who manages the PIMCO Total Return Fund, the world's largest bond fund, tweeted:

Gross: Stocks are down because taxes on Capital are going up. HY Bond liquidity is declining.

— PIMCO (@PIMCO) November 16, 2012

Junk bonds have had a great run in this yield-starved environment. At the end of October, the trailing 10-year inflation-adjusted return on the BofA Merrill Lynch US High Yield Master II Index was 8.3%. The last time the trailing 10-year return was higher than that was near the top of the previous cycle in January 2001, when it reached 8.7%. Personally, I sold my position in the HYG ETF from the model asset allocation portfolio I maintain, at the end of August.

The micro view: Dow component JPMorgan Chase (NYSE: JPM  ) is taking a $300-million slap on the wrist to settle charges by federal regulators relating to the sale of mortgage-backed securities during the credit bubble era. Per the standard agreement, JPMorgan will neither admit to, nor deny, wrongdoing; the charges pertained to both Bear Stearns, which JPMorgan acquired in 2008, and to JPMorgan's own activities prior to that acquisition. Ho hum.

While I don't condone the behavior that was the object of this settlement, JPMorgan remains one of the best-run banks, with some of the highest business standards in the industry. I don't think one need feel guilty about owning their shares. Furthermore, they look like a pretty good risk-adjusted opportunity right now. To get a comprehensive assessment of the upside, click here to receive our premium report, which includes 12 months of ongoing coverage.

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Related Tickers

10/25/2016 4:00 PM
HYG $87.37 Down -0.05 -0.06%
iShares iBoxx $ Hi… CAPS Rating: **
JPM $68.80 Down -0.07 -0.10%
JPMorgan Chase CAPS Rating: ****