- Investors shouldn't be overly defensive despite bubble fears, according to JPMorgan's Meera Pandit.
- There is still some "froth in the market", but much of that has come down, she told Bloomberg TV.
Parts of the stock market are starting to look less overvalued despite investing veterans' repeated warnings about a potential superbubble, according to a JPMorgan strategist.
Meera Pandit said that investors shouldn't pivot too hastily to defensive strategies.
"There are still areas of froth in the market that we need to see come down, but a lot of that has taken place already," she told Bloomberg TV on Thursday. "So I do think we don't want to be overly defensive or overly cautious."
In a frothy market, asset prices have risen beyond their true valuation. Pandit warned against overly cautious investing strategies after being asked about veteran investor Jeremy Grantham's recent prediction that a "superbubble" in stocks and other assets looks as though it was entering its final stages.
Much of Wall Street has also warned of further pain ahead for equities, with a bear market potentially dragging on into 2023.
Pandit acknowledged that there are plenty of reasons for pessimism,but said that certain pockets of the market could represent solid longer-term investments.
"Certainly we don't have a lot of reasons to be bullish in this type of environment for the next couple of weeks and months," she told Bloomberg TV. "Yet when we think about the longer term perspective in the longer term investor these are the types of levels that can be quite fruitful in the long run."
Central to Pandit's outlook is the significant fall this year in the S&P 500's price-to-earnings ratio, which measures companies' share price against their earnings per share to assess whether they're over or undervalued.
"We're actually just below 25-year long term averages in the S&P 500 forward price-to-earnings ratio," Pandit said. "When we think about valuations at these types of levels compared to where we were at the beginning of the year … the subsequent returns that valuations at these levels imply are closer to mid-single digit to high-single digit."
Pandit even backed investing in certain fixed income assets – even though global bonds just tumbled into their first bear market in more than three decades.
"These are the types of valuations that can be again fruitful for longer term investors not only in the stock market but in particular in the bond market," she said.