Dow's rally most explosive since 1938

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    On Thursday, the Dow Jones Industrial Average hit its highest level since Feb. 9.
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The US stock market has staged its most explosive rally in 70 years.

On Thursday, the Dow Jones Industrial Average climbed 216 points to close just shy of 8000, capping an 18-day rebound unequaled since 1938. Since March 9, the Dow has regained 1431 points, or 21.9 percent.

The last time the Dow bounced back so quickly – 23.8 percent in 18 trading days in June – Hitler was mobilizing to invade Czechoslovakia, and Joe Louis had just knocked out Max Schmeling at Yankee Stadium.

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Stimulus impact

But the more telling comparison between then and now is federal spending. In the spring of that Depression year, as unemployment worsened to 19 percent, President Roosevelt abandoned his efforts to balance the budget and embarked instead on a $5 billion program of relief and infrastructure projects. The move marked the beginning of America's embrace of deficit spending during recessions.

Congress's $787 billion stimulus bill, passed earlier this year, follows the same pattern of logic.

Uncertain results

Do such programs work? Until recently, most economists pooh-poohed such stimulus plans, pointing to their delayed impact. World War II really ended the Depression, they say. Others claim that the war proves that more stimulus funding will do the trick. Fed Chairman Ben Bernanke, a student of the Depression, has said that injecting money into the economy was the key to recovery.

In any case, the rally of 1938 anticipated the end of the second big slump of the Great Depression. Some market observers are beginning to see light at the end of our own long dark tunnel.

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