The economy is slowing, real wage growth is nowhere to be seen, the consumer is finally rolling over and the Fed needs to raise rates to fight inflation. Yep, it's time to buy stocks.

For the first time in a while, the stock market overall isn't looking terribly expensive. While that doesn't mean the market is poised to go up soon, it shouldn't go down dramatically either.

The Federal Reserve tightened for the eighth time since last June on Tuesday, but financial conditions in the economy overall surprisingly have not become much tougher. The Goldman Sachs financial-conditions index, which attempts to measure how much stimulus there is in the economy, stands right about where it was when the Fed started raising rates. Since then, the dollar has weakened, the stock market is up and corporate-bond rates are down -- all things that stimulate the economy.

It's an unprecedented combination, says Jan Hatzius, an economist for the firm. "In some sense, the Fed hasn't achieved all that much," he says. It's just another reminder of the exceptional and difficult period that confronts the markets.

Sure, it appears that the high price of oil has slowed the economy down. And lately, corporate-bond prices have fallen amid signs that investors are starting to take the Fed's moves more seriously, even though the economy seems fragile. Eventually, as the Fed presses on with its rate rises, the central bank will manage to apply the brakes.

Thus, investors need to shift out of sectors that have done well over the past couple of years: financials and cyclical sectors that ebb and flow with the economy, such as industrial companies and materials. Tyco International's earnings warning Tuesday was an example of the vulnerability that industrial companies have to the slowing economy. The shares were off over 7 percent.

Overall, financial stocks have been down only slightly more than the market so far this year. As a group, they have further to go down. There has yet to be the kind of financial accident that leads to a halt to a Fed tightening. But beneath the surface, the canaries have started to look peaked. General Motors and Ford Motor (which have big financing operations) both reported weak sales for April on Tuesday. Three triple-A rated financials -- Fannie Mae, Freddie Mac and MBIA -- not to mention erstwhile triple-A AIG, are all under various forms of regulatory scrutiny.

And look at the companies that make home loans to people with low credit scores. New Century Financial is off about 27 percent this year; Accredited Home Lenders has tumbled about 27 percent. Friedman Billings Ramsey, the investment bank to the housing boom, is off about 43 percent this year.

Amid this, investors will discover the cyclical industries are indeed cyclical, as Merrill Lynch strategist Rich Bernstein (a rare bond bull) has been warning for some time. A bull on energy over the long term, Mr. Bernstein thinks energy stocks now are looking overvalued, as are luxury-goods makers, housing and construction companies, steel and other materials manufacturers.

By contrast, some investors are turning to big, boring companies. Consumer staples, some areas of health care and discount retailers -- all things that do OK in lean times -- should start to do well. Wal-Mart Stores and Anheuser-Busch shares are looking pretty cheap these days. Investors have begun making the shift, but there's more to come over the next year as the overall market struggles.

Of course, there are those who contend that the stock market is going through its "Been Up So Long, It's Starting to Look Like Down" phase. In other words, yes, the Standard & Poor's 500 is trading at under 16 times estimated earnings for the next 12 months, but just because that's lower than it has been in recent years, that doesn't mean it's cheap. Dresdner Kleinwort Wasserstein bear James Montier pegs the market as terribly overvalued, preferring to gauge valuation by taking the moving-average of the past ten years of earnings. By that measure, U.S. stocks are trading at around 30 times earnings, compared with an average going back to the 1880s of-- times, he says.

The doomsayers continue to foresee widespread consumer defaults and a burst housing bubble. But that won't happen absent significantly higher long-term rates. And that means certain areas of the stock market are attractive.

Anyone up for a beer?