No Pain, No Gain: 'We cannot rely on the usual Christmas rally this year'

With the stock market continuing to behave resolutely, despite this week's Bank of England-inspired retreat, hopes are growing that a long-cherished but now largely forgotten tradition, the festive share rally, will be revived this year.

Often, in the 1980s and 1990s, when investors were experiencing joyous times, the preparation to Christmas was heady. The last time we enjoyed exhilarating festive cheer was in the final year of the last century, when shares raced ahead and the Footsie 100 index hit its all-time peak of 6,950.6 points on millennium eve. After the record-breaking display shares slumped into ragged retreat until the blue-chip index crashed to 3,287 in March this year.

But perhaps this time the environment is more conducive to a good, old-fashioned Christmas romp. Footsie had at one time made up more than 1,000 points from its nadir and once the stock market settles down after the Bank's confirmation that interest rates could soon rise, I believe the recovery will gather strength.

What is often overlooked is the sheer exuberance display-ed on the stock market undercard. Indeed, the FTSE small-cap index has comfortably outperformed the more illustrious blue-chip measurement. Clearly, the stock market is trying to get in the mood for a real festive session. But at times these happy celebrations were often quirky and could be difficult to justify in the harsh and more sobering light of January and February.

Why did they occur? During my years as The Independent's stock market reporter, the popular guess was that the Christmas run reflected a people shortage. Often the heavy hitters of the Square Mile would start their holiday a week or so before Santa Claus embarked on his rounds. The result was thinly staffed dealing rooms with often-hesitant deputies in command.

And with trading volumes low, price movements could be exaggerated. If the stock market was in the right mood it all added up to a splendid atmosphere for the Christmas spirit to prevail.

Whatever the merits of this explanation the indisputable fact is that heady Christmas run-ups often occurred in days when investors were displaying confidence, and I enjoyed chronicling many a merry romp.

But it is impossible to ignore an array of gathering storm clouds. The fragile confidence could be shattered easily. The international situation, with the threat of more terrorism, remains tense and the global trading outlook, although improving, is uncertain. Tax increases and now higher interest rates are inhibiting on the home front.

And there is, not for the first time, the worrying attitude of the European Union towards stock markets and investment. The EU persists in adopting what I can only describe as an uncompromisingly idiotic attitude. The latest example involves what has become an essential part of the small investors' armoury: execution-only stockbroking.

In April, I drew attention to the EU threat to destroy this cheap and cheerful dealing facility, used by some 1.5 million British investors, but little known on the Continent. For some months it looked as though common sense would prevail and the proposed legislation would be watered down, even thrown out.

But common sense suffered. The Chancellor, Gordon Brown, was absent from the controversial conclave that approved the execution-only blow (plus other ill-conceived measures that will hit the City). If he is unable to get his Euro act together it appears cheap share dealing will soon be over.

There is, I gather, a remote chance the Brussels edict will be rescinded. Unless it is, stockbrokers will be forced to make so-called suitability checks on all clients before undertaking any deal. Such rigmarole will push up overheads and can only mean increased costs.

It seems the idea behind this move is to shelter simpler, less experienced souls playing the stock market in Euroland. These backwoodsmen may need such protection but the more sophisticated British investor certainly does not require such expensive nannying.

I have in the past expressed my anxiety about the investment ignorance that permeates the EU corridors of power. There is little evidence Brussels is capable of understanding the well-developed, broadly based British investment system that is streets ahead of anything on the Continent. But my dislike of the EU is not confined to its poor record on investment. I suspect readers realise I have little, if any, faith in the monster that has been created.