One of two things will occur. The markets are going to continue to march northward (irrespective of FED cut or neutral stance), the markets may get so carried away they gain such strong momentum and blow into new highs. Bernanke may then take this opportunity (such as Greenspan did) and pull the trigger on higher rates. With the economy in such frail state, additional tightening will kill us all. No matter how high the markets go, this is not representation of strength of economy, but false sense of europhia causing many consumers, banks to invest in stocks and try and capture bigger returns. Much of this money will be dumped into the market in same buying cycle causing the big surge in prices.
If housing / mortgages / economy continue to suffer, the FED may actually come in and do the responsibile thing and reverse monetary policy to easing. This would help salvage considerable number of home-owners to have opportunity to refinance and keep from foreclosures. The current damage to consumers and financial institutions is already done, any cut now or later would not reverse this damage, but would help stem the bleeding.
We are really close to the tipping point and depending on what the FED does in the near future will determine how much time we have left. So here is my scenario, before this markets tops out, it will be in the form of a blow-off top. A bull market of any magnitude ends with an unbelievable amount of buying frenzy. If we get a big correction w/o this huge explosion to the upside, the market will recover and we take another run at new highs. If we get a blow-off top, the target is right around 18,500 (this is conservative by some other analysts), the downside target would be back down to around 1800 or lower (in a relatively short time frame). In '87, the 500 point decline over 1 trillion dollars got washed out. Under this scenario (which is very much a possibility), we would be looking at around 40 trillion dollars wiped out. The panic would spread globally since you cannot contain fear, margin calls, plummeting dollar would hemmorage global economies who have bought our debt and largely depend on U.S. for trade.