Martin Zweig is a well know market guru. He made so much money in the stock market that he retired long time ago. In his book published in 1990, he discussed in length the impact of Fed’s monetary policy on the stock market performance. His study showed that after the Fed cut the discount rate twice within a few weeks to a few months, the stock market would get into an “extremely bullish” period. During the 30 years from 1958 to 1988, there were 14 such periods (total of 9.4 years). The stock market moved up 12 times and down twice. During the 2 periods when the market had negative returns, the losses of the SP500 index were -4.6% and -6.1%. But the average gain in all the 14 periods was 23.5%. One could still easily beat the index by staying in money market funds during the rest of the years (21.6 years). The Fed recently cut the discount rate on 8/17 and 9/18. From now on, even if it makes no more cut, the bullish period will last through 3/18/08. But more cuts will further extend the period.

History often serves as good guidance. With this kind of historical data behind us, one really has no reason to be bearish!