Analyst says bear market is beginning to level out.

Byline: Todd Karpovich

Richard Cripps, chief market strategist for Legg Mason Wood Walker Inc., is urging investors to begin leaning toward small- and mid-cap companies with lower valuations and higher projected earnings growth than the Standard & Poor 500, because the economy is transitioning out of a bear market.

Cripps predicts the equities market is moving in a much different direction than the immediate past markets, where both the Dow Jones industrial average and Nasdaq composite index took a fairly hard beating. Cripps also is advising investors to refrain from outweighing technology stocks, and look at other companies that provide higher dividend yields than the S&P 500.

The market slowly is beginning to show signs of recovery, and Cripps said the bear market of the past six months is beginning to level out. Transitioning out of the bear market can be seen with the Nasdaq, which is up about 34 percent after hitting its low point, and Cripps said stock prices have already discounted the downturn in economic growth, along with most fallout from the tech sector.

There have been fundamental changes in the complexion of the equities market, Cripps said during a seminar at Villa Julie College last week. We are moving rapidly away from the new economy stocks to old economy companies with meaningful earnings.

The Federal Reserve is also trying to pull the economy out of its slump and has already lowered interest rates five times this year. The latest cut last Tuesday did not muster the ...