This type of bull market is a rare occurrence, and it’s one investors definitely don’t want to overlook. Recently, the FTSE 100 index soared to 10,687, marking an 8% increase since the beginning of the year and a rise of nearly 25% compared to the same time last year.

Such a surge represents the most significant upswing in the 21st century, offering a well-deserved payoff for investors who stayed the course through challenging periods.

By my calculations, the number of Isa millionaires has likely surged to around 20,000, a significant jump from the 5,000 reported in the latest official figures from April 2023.

Those who heeded the pessimistic forecasts and sold their shares last year might be feeling a bit regretful now.

So, what lies ahead? For many, this stock market boom seems puzzling, especially when considering the uncertain economic forecast for the UK.

However, the FTSE 100 isn’t solely influenced by the UK’s economic conditions or the sentiments of local investors. On average, a substantial 75% of the index’s member companies’ revenues are generated internationally, with nearly two-thirds of its shares held by foreign investors.

On a roll: Anyone who listened to the gloom-mongers and sold last year has a right to feel a little sore

You have to hunt for precedents – periods when the UK markets have performed like this. You have to look at the relative value of equities now on a global and historical basis. And you have to at least be aware of the investment fashions of the moment.

First, the precedent. The best one I can suggest was the dot-com boom of the late 1990s, plus the bust in 2000 – but with two crucial differences.

The most important similarity is the sense of euphoria driven by the awareness that the internet revolution would transform the world economy, just as artificial intelligence – AI – is about to do now. 

This was supported by what seemed a reasonably solid outlook for global growth. Inflation had been brought under control after the dreadful experience of the 1970s and 1980s, so there were few fears of a surge in interest rates and there was ample liquidity in savings institutions.

Then investors allowed themselves to get carried away, and everything went pear-shaped.

The Footsie fell from 6,950 on December 30, 1999, to 3,570 by the end of 2003 and only regained its peak 16 years later. Not an encouraging outlook, but happily there are two crucial differences.

One is that UK companies are not players in this high-tech boom. That’s an American game.

What’s happening now, with the wobble in the price of AI-related stocks, is the rotation from AI to firms in ‘boring’ sectors, such as banking, resources, pharmaceuticals, defence and consumer products, which dominate the Footsie.

It is quite possible the AI boom will indeed mirror the dot-com boom in that it will transform the world economy, but many of the companies that are driving it won’t make sufficient profits to justify their current ratings.

A bear market in the shares of the ‘Magnificent Seven’ could last for 18 months, maybe longer. The shares of one of those top seven technology stocks, Microsoft, are already down a quarter from their peak. But until the next global recession comes along, most of the Footsie enterprises will continue to benefit from this growth phase of the economic cycle. Being boring is best.

The other difference is that the structural disadvantage facing the London market no longer applies. For a quarter-century after Labour took power in 1997, thanks to the changes in tax and regulations it brought in, UK institutions have been net sellers of British companies. 

In the 1990s they owned half the market. Now it is some 4 per cent. Whether or not plans to reverse that actually work doesn’t matter. They don’t have enough shares left to sell. That transforms the outlook.

Valuations? They still look just about OK. The Footsie price/earnings ratio has risen to 21. Its long-term average is 16, so it is asking quite a bit to justify that. 

But it is below that of the S&P500 at 29, and foreign enterprises are still snapping up UK quoted firms as they look good value.

That leads to the final point. The fashion now is for value, not airy-fairy hopes. I expect this to dominate investment for a long while yet. 

Somewhere in the future there is the next bear market, but wise investors should not miss the final months of this one.

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