Christmas is coming and are the stocks going to be fat?

Will shares start to pick up as the year draws to a close? The last two months, particularly December, often provide more than a little light relief for investors and, on the surface, there appears to be no significant reasons why this year should be any different.

Will shares start to pick up as the year draws to a close? The last two months, particularly December, often provide more than a little light relief for investors and, on the surface, there appears to be no significant reasons why this year should be any different.

With the traditionally difficult October accommodated without too much anxiety, there is reason to believe that banking on a joyful end to the year will once again be a winning strategy.

To some extent it is a self-fulfilling bull run. Investors have grown accustomed to an increasingly strong performance as the festive season approaches. So the temptation to adopt a more optimistic policy once October is out of the way is already high on the agenda of many alert investors.

And once they start to dig into their wallets there is a strong chance of the herd instinct prevailing and the seasonal run getting underway.

Other factors also come into play. Holidays are one. In the weeks or so ahead of Christmas the share-dealing community often finds itself operating with far fewer bodies than normal. And with many of the big hitters using their rank and deciding they are the ones to deserve a sunshine break, the stock market becomes more susceptible to a follow-the-leader mentality. In other words, those left minding the shop feel it is easier to go along with the crowd; if a share is moving ahead they are anxious to clamber on board and buy a few rather than run the risk of being left behind and, perhaps, looking rather foolish.

Of course, a new millennium would seem an ideal time to make a complete nonsense of such accepted investment wisdom. The increasing crop of profit warnings and the faltering displays by many of the hi-tech brigade are clearly disquieting developments. Still, at least in the short term, the economy should remain benign and my impression is that New York will hold its nerve.

Many old economy shares remain on highly attractive ratings and the old timers seem more capable - and willing - to take on the hi-tech upstarts. With their ability to pay dividends - yields of more than 6 per cent are available - it's easy to make a strong buying case.

Most small caps, as I have mentioned many times, are still in the bargain basement. On old fashioned investment measurements they are undeniably cheap.

In the final two months of last year - an unusually calm period in investment climate terms - Footsie moved from 6,070.6 points to end 1999 at a peak of 6,930.2. At times it looked as though it would top 7,000. In the previous year, after a particularly rocky October, the index's late fling produced a gain from 5,438.4. to 5,941.5.

This time round, I believe, Footsie could be particularly volatile. After all, BP Amoco and Vodafone dominate the index. For example, if Voders reclaimed its February high of almost 400p it would add some 400 points to Footsie. At 283p there is a very long way to go and such a spectacular festive run is clearly unlikely - but by no means impossible. One difficulty is many institutional investors, restrained by in-house rules which restrict individual holdings to 10 per cent of their portfolios, are overstocked with the telecom giant's shares

I merely cite the Voders case as an example of how vulnerable Footsie is these days to individual influences. When it was created in 1984 its weighting was much more evenly spread among its 100 constituents and no single share had anything approaching the influence of BP or Vodafone.

The no pain, no gain portfolio has experienced mixed fortunes in the past few months. I intend to produce a review of its 16 shares in the next few weeks. In the meantime it is reassuring to record that 12 of the 16 constituents are enjoying plus signs with the remaining four in the red. Lynx, the computer group, is our worst performer, falling from a tip price of 216.5p to 111p.

I am a anxious about the way expectations are growing at the Safeway supermarket chain, tipped at 248.5p and now 286.75p (after 300.5p). Its last trading statement was encouraging and the forthcoming interim figures should be splendid. But its rivals will counter its successful nimble-footed, cut-price policy and much may depend on its new store development programme.