Following its peak at 6,950.60 in late December 1999, the FTSE 100 index entered a secular (long-term) bear market, trading in a range between around 6,750 and 3,270.
At the height of the credit bubble in the summer of 2007 the index tested the top of this range several times, briefly reaching 6,754.10 in July. However the market quickly reversed and barely paused as it fell all the way to its March 2009 bottom of 3,460.71.
Having essentially traded sideways for 13 years, the FTSE 100 has finally reached the 2007 peak and is now only 193 points away from its December 1999 all-time high. Driven by a mix of ultra-low interest rates, unprecedented central bank liquidity and improved corporate earnings, the index of the top 100 UK companies has every chance of reaching this level this year.
In nominal terms the FTSE 100 is now just 2.8% below its 30 December 1999 high of 6,950.60. In real terms however, i.e. adjusted for inflation, the FTSE remains 28% below it.
A monthly chart of the FTSE 100 index: January 1990 to April 2013 (Click on the chart for a larger version)
Source data: Monthly close prices from Yahoo Finance. CPI inflation data from the Office for National Statistics (ONS).
The chart above shows the FTSE 100 index between January 1990 and April 2013. The blue line is the one everyone is use to seeing, as it’s simply the price performance in nominal terms. The red line however, is the real price performance, i.e. the price adjusted for the rate of inflation (CPI).
In nominal terms, those that have held UK stocks for the past 13 years are back where they started, however, once the depreciation of the currency (using the governments somewhat questionable inflation numbers) is factored in, they have lost more than a quarter of their wealth.