U.S. Stocks Rise on Optimism Fed Will Cut Rates -- Bloomberg
Stocks Rise Ahead Of Fed Meeting, Cisco Earnings -- Dow Jones
Rate-Cut Hopes Help Stocks Close Higher -- TheStreet.com

SAN FRANCISCO -- There's optimism and then there is serial, compulsive

Pollyanna-ism

. Despite poor returns this year from multiple rate cuts, speculation about

Federal Reserve

easing continues to be the elixir of choice for equity investors.

The headlines above were from today, during which the

Dow Jones Industrial Average

rose 1.2%, the

S&P 500

gained 1.4% and the

Nasdaq Composite

climbed 2.7%, but they could have come from just about any other time this year.

Certainly there were other factors at work today, including speculation about

Cisco's

(CSCO) - Get Report

earnings. (After the close, Cisco reported it earned 4 cents per share on $4.45 billion in revenue vs. analysts' expectations for earnings of 2 cents a share on revenue of $4.17 billion.) But anticipation about another rate cut at Tuesday's scheduled Federal Open Market Committee meeting clearly influenced trading today, as well as expectations going forward.

"Hopefully, this is the catalyst for a good year-end rally," commented Greg Smith, chief investment strategist at Prudential Securities, noting the potential for rate cuts this week by the European Central Bank and Bank of England in conjunction with the Fed. "We have a chance for three rate cuts this week

and if we are going to get a rally on monetary policy, this has to be the week."

How else, other than rate-cut anticipation, to explain the market's advance despite news the National Association of Purchasing Management's nonmanufacturing index fell to 40.6 in October? That was a record low for the 4-year old index and far below expectations for a decline to 46 from 50.2 in September.

But as with the string of sickly economic data

last week, the NAPM report was interpreted to mean a higher likelihood of a 50 basis-point rate cut Tuesday as well as more rate cuts to come later in the year. (Indeed, fed funds futures are pricing in about a 65% chance of a 50 basis-point cut Tuesday, and there's heightened talk among market participants about additional cuts at the Fed's next scheduled meeting on Dec. 11.)

The "it's all good" attitude was embodied today by Paul Rabbitt of Rabbitt Analytics in Hermosa Beach, Calif., who wrote: "With sentiment so pessimistic, the economy will have to be worse than expected to create further disappointment. Now, anything less than a disaster will be interpreted as a positive surprise."

Rabbitt, it should be noted, is no permabull. "We are not buying the recent strength

in growth stocks and, in particular, technology," he wrote in the same report. "There is insufficient evidence to turn us from a value-focused strategy with an emphasis on capital preservation."

Still, he surmised that the purportedly negative investor sentiment, in conjunction with additional liquidity from the Fed, means "the rally from the September lows will continue as a year-end rally

and that the major lows of the bear market of 2000-2001 have been achieved."

Two questions: One, if sentiment really is so dour, why are investors seemingly so able to put a bullish spin on dismal economic and earnings news? Two, why do investors retain their faith in the healing power of Fed easing, given the rather dismal track record rate cuts have had this cycle in inspiring anything more than fleeting rallies?

No Bull Here

Given the postease returns cited above and the fact most ease-anticipation rallies have quickly faded on the news, it's not surprising the hard-core skeptics remain unbowed.

Alan Newman, editor of HD Brous & Co.'s

CrossCurrents

, issued a report today in which he predicted "the rally from the Sept. 21 bottom may finally be nearing its end," and that a retest is possible.

Elsewhere, John Mesrobian, the mega-bearish analyst from Constantinople Advisors, emailed the following: "The picture may be painted as rosy by Wall Street and the Fed but

we see much troubles ahead for the markets and the dollar. This 30-year bond gamble will be a loser for the Treasury and the Feds. They are attempting to lower rates and flood the market with liquidity

but in the end the dollar is artificially being propped up and will fall and fall hard. The same

for equities."

Mesrobian reiterated downside targets of 5500 for the Dow and 1100 for the Comp, plus a 25% decline for the dollar.

That said (and done), I suspect it is a tough time to be a cynic. What with the Treasury Department's decision last week to

eliminate the 30-year bond and a stimulus package pending from Congress, those betting against the market aren't just fighting the Fed -- they're practically fighting the whole danged U.S. government as well as its allies (assuming the ECB and Bank of England ease this week as well).

As one who's railed in the past against the so-called

moral hazard of various Fed policies, I certainly understand the philosophical argument that the government is "propping up" the market by artificial means. Nevertheless, I don't recall any philosophical-argument tax levied against those wise enough to book profits generated in the aftermath of the Fed's bailout of Long Term Capital Management in 1998.