This paper examines the asymmetric response of international stock markets to Federal Reserve policy. We find that a hypothetical unanticipated rise in the federal funds rate target has a negative effect on international stock returns in the bull market. This is consistent with the discount effect. In contrast, an unexpected rise in the federal funds rate target has a positive effect on international stock returns in the bear market. A higher interest rate may herald higher future cash flows in the bear market. This effect dominates the discount effect, so an interest rate rise leads to higher stock returns.