Ask a stockbroker what the biggest threat to the current rally is and he or she will probably respond with a one-word answer – tightening. In fact, an increasingly common fear among traders is that the end of ultra loose monetary policy, and the withdrawal of fiscal stimulus, could bring the whole market crashing down as it did in 1938.

Whether you subscribe to that view or something more benign, the moment of reckoning is drawing near. The rally, which started back in March and has seen the FTSE 100 rise 44 per cent, is about to face its biggest test.

In the past month, authorities round the world have started to withdraw some of the emergency measures that have helped pull the global economy out of recession. Australia and Israel have lifted interest rates and on Wednesday, Norway became the first country in Europe to do so. Bank of Japan has just started its withdrawal from credit markets.

Historically, tightening periods have not been positive for equities, although they have created buying opportunities.

Morgan Stanley’s Teun Draaisma has examined 19 “secular” bear markets and found that after the rebound rally (which averages 71 per cent over 17 months) the correction that follows when the tightening cycle begins, averages 25 per cent over 13 months.

However, that is just an average figure and it is worth remembering that US equity markets fell 50 per cent in 1938 after fiscal stimulus was withdrawn. As David Einhorn, of hedge fund Greenlight Capital, noted in a recent speech it is possible that something similar could happen this time.

“An alternative lesson from the double dip the economy took in 1938 is that the GDP [growth] created by massive fiscal stimulus is artificial. So whenever it is eventually removed, there will be significant economic fallout.”

Indeed, the extent to which the record stimulus packages have boosted the US economy was evident in Thursday’s preliminary gross domestic product data.

The headline figures showed the US economy had grown at an annualised rate of 3.5 per cent in the third quarter. However, economists reckoned underlying growth was closer to 2 per cent once temporary factors such as the “cash-for-clunkers” car rebate scheme, tax incentives for first-time homebuyers and a big swing in inventories, were stripped out.

Of course, not everyone thinks panic will ensue once monetary and fiscal support is withdrawn. One is Tim Bond, of Barclays Capital, who says such concerns are overplayed. He says inventories were cut too aggressively in the post-Lehman Brothers panic and are now far too low in relation to demand. As such, output will continue to rise in the quarters ahead regardless of stimuli, as companies restock, returning the labour market to positive growth and in turn boosting household income and spending.

Equity strategists at JPMorgan are also sanguine. They claim turns in monetary policy have not been long-term game changers for equity markets. “The start of tightening produces a dip which should be bought into,” they say.

Markets will get a better idea of when policy normalisation might start next week when the rate-setting committees of the US Federal Reserve, the Bank of England and the European Central Bank all meet.

In light of recent weak GDP data, the Bank is likely to keep rates on hold until the tail end of next year and could conceivably extend its policy of quantitative easing.

However, the most important signal will not come from the Bank (or the ECB) but the Fed. And it is likely to signal any upcoming change in policy with a subtle change in its language. Mr Draaisma thinks the Fed’s statement that rates will be low for an “extended period” will probably be maintained until it is very close to lifting rates – which he says could happen in the second quarter.

Only then, or perhaps later, will we find out if the experience of 1938 will be repeated.