The FTSE 100 Index ended 30 June on 5,833.4, a gain of 1.9 per cent on the month, putting it back within sniffing distance of the four-year highs seen earlier in 2006.

The FTSE 250 Index has less of an oil-weighting, and with crude surging ahead during June, that was to the detriment of the second line index. It advanced by 1.3 per cent to 9,422.7. But this was a tale of two cities. The hot money flowing back into equities, inevitably, went into the most liquid stocks: the blue chips.

It has yet to reach the small caps, and with private investors perhaps spooked by the sharp falls seen in May and by the words of the bien morons (sorry pensants) there was more selling than buying of the tiddlers. The FTSE Small Cap Index lost 0.89 per cent during June to close at 3,393.4, while the FTSE AIM Index fell by 3.67 per cent to 1,080.4 although this was largely due to a sell-off of the heavily weighted internet gaming stocks.

As I penned this column a month ago I felt rather like poor old Corporal Jones in Dad's Army. “Don't panic! Don't panic!” I cried as the stockmarket bombs rained down and everyone promptly panicked. But the bears, as Corporal Jones knew well “don't like it up ’em.” By “it” I refer either to rational discussion or a sharp market rally which has seen those with short positions take a terrible beating. Forgive me a smug smile.

That the markets remain jittery is clear. There remain reasons for nervousness. The regimes in North Korea and in Iran are both quite obviously mad, bad and dangerous to know. One has missiles and (probably) The Bomb, the other is working towards a similar goal.

The Middle East remains a powder keg, which is not helped by the Palestinians’ election of a bunch of murderous barbarians as their government. One can construct any number of scenarios of conflicts – especially in the Middle East – which sends the oil price soaring higher (Brent crude is already trading at more than $70 a barrel) and that would clearly not be good news for corporate earnings or for equities.

And despite the Fed’s hinting that the base rate cycle is coming to a close, it is pretty obvious there will be a couple more rate rises on the way in the US and more still in the UK and Europe. Historic bugbears such as the size of the US trade deficit and budget deficits across the Western world remain an issue.

But these are pretty much all “wall of worry” issues. That is to say, equities, when rising, always find themselves climbing a wall of worry. Give me any bull market in history and I could offer you 20 reasons why investors should not have been buying shares at the time. Building walls of worry is not hard. The only time investors find nothing to worry about, when everyone agrees that markets are heading higher, when there are no bears left because they have all capitulated, is when investors really should worry.

Most of these reasons for investor nervousness were factors six months ago when equities were shooting higher. The difference between July 2006 and January 2006 is merely one of perception. That is to say that the sharp falls in May made investors take bear arguments on board as being plausible and serious.

After Christmas, after two years of month-on-month increases, no one would have given the bear case a second glance. The fact that investors are nervous is bound to cause increased volatility, especially during the summer months when trading volumes are thin.

But is there a plausible bear case? The answer is no. Barring unexpected actions by a Middle Eastern crazy, we can focus simply on issues of corporate earnings and valuations. Let us start with earnings. At the start of 2006 I expected UK corporate earnings to grow by 10 per cent (give or take a percent or two). UK PLC has cut costs viciously over the past three years and thus higher sales will have a significant bottom line impact.

And, by and large, UK plc is delivering on earnings forecasts. The raft of half-calendar-year trading statements is now almost complete and the vast majority of quoted companies stated that they were on track to meet – or beat – forecasts for the half and full year. Earnings visibility is good and the outlook for 2007 is generally healthy. That sort of earnings outlook is not what one expects from a market that’s about to crash.

And what of valuation? We are now less than six months from 2007. Therefore, increasingly investors will turn their attention not to earnings forecasts for 2006, but to those for 2007. And, overall, the FTSE 350 now trades on a low-to-mid-teens 2007 price earnings ratio. By historic standards, that's far from extreme.

Those are certainly not the sort of dizzy ratings one associates with previous pre-crash periods (in March 2000 the FTSE 100 traded on a forward PE of more than 20). There is no reason to expect a crash.

And as I have stated for almost a year, where else would you rather put your cash? Residential property? On deposit? Bulgarian wine? Equities might not have real sex appeal right now but, whatever the bien peasants say, they remain the best game in town.

In 2005, stock tips published by Tom Winnifrith rose, on average, in value by more than the tips published by any other UK based tipsheet, magazine or national newspaper according to Updata. Tom is the editor of www.t1ps.com.