Shares are booming again and some banks are raking in huge profits – is the financial meltdown over?

London’s FTSE-100 share index has soared more than 30 per cent in six months, while some funds invested in overseas equities have jumped more than 40 per cent.

Meanwhile, last week’s bumper profits announcements from HSBC and Barclays prompted the BBC’s financial expert, Robert Peston, to declare his opinion that “the worst banking crisis in 100 years” is over.

This share-price rally has been global, with peaks for the year seen in New York, across Asia and Europe.

Even my clapped-out fund in Dublin got off the canvas to double in value since its low of 2008.

All this is good news for millions of workers in pension funds (of the defined contribution variety) which rely heavily on the stock markets – and for any small investors who were brave enough to buy after the global collapse which sank Lehmann Brothers and HBOS in September/October 2008.

Britain’s army of small investors has seen the value of its shares jump by £8 billion to a total of £138 billion since the end of May, according to Capita Registrars.

Figures due imminently are expected to show them active in the market again but where does the rally go from here?

If Peston is right about a “once in a century” crisis, it’s a fair bet that shares will eventually go much higher than they are today.

Despite the euphoria, however, formidable forces threaten to pull London shares back down. They include the dire condition of our domestic economy: huge pension-fund deficits, which firms plug from profits; spiralling personal debt; alarming Government levels of borrowing and rising unemployment.

Whichever party wins the 2010 General Election, steeply rising taxes are inevitable and will slash consumption while a serious Middle East crisis is quite possible over Iran’s continued efforts to build nuclear bomb.

No wonder Tony Ahearne, financial advisor and director of Moneyspider.com, which compares the performance of managed funds, says that many clients are still not keen to invest.

“They see this as a ‘dead cat bounce’, with share-price falls likely in September/October,” he said.

“My belief is that Far Eastern shares will be first to recover, followed by the United States, Europe and lastly the United Kingdom, because of our severe structural problems.

“This is the time to spread other investments – cash ISAs, gilts, bonds – alongside equity holdings, although many who had the courage to buy shares in October and November made money.”

Nick Raynor, investment advisor at The Share Centre, is also cautious. “We expect a correction, so we advise clients with short-term profits on volatile stocks to switch into utilities – like water companies United Utilities and Severn Trent, National Grid and Centrica, which all provide yields in excess of six per cent at the moment,” said Raynor.

“Vodafone also yields six per cent-plus, much better than cash on deposit.”

Depending on your view, shares should be part of a long-term savings pot to boost income from state and private pensions.