Analysts predict the robust global economy which supported equities and commodities in 2005 to lose some steam from about the middle of next year as previous rises in global interest rates bite. That should cushion government bonds from a retreat started in the second half of 2005.
"The outlook continues to be one which will favour equity markets over competing asset classes," said Paul Niven, head of strategy at F&C Asset Management.
"Our view is that 2006 is going to be a year of slowdown, however it is going to be a better balanced backdrop in terms of growth as Europe and Japan continue to take up some of slack from the slowing US economy, and an environment whereby interest rates globally are going to be peaking."
Boosted by take-over activity and profits growth more than double the rate expected at the start of the year, European stocks measured by the FTSEurofirst 300 Index have risen 4 percent in the fourth quarter, taking 2005 gains to 23 percent.
That marks the best annual return for European stocks since the height of the price bubble in 1999, a return that was followed by a three-year bear market which wiped 60 percent off the index.
The chances of either a repeat of another 20-percent-plus year, or a sharp reversal are not seen as high by strategists, with most forecasting high single- or low double-digit returns for 2006.
"In our view, European equities are supported by three factors: attractive valuations, positive earnings momentum and high corporate cashflow," said Nick Nelson, a strategist at UBS.
Miners, oil companies and other commodity-related stocks have been among the best performers this year as rampant demand for basic resources from emerging economies like China and India combined with still strong growth in the United States.
Gold, copper, platinum and oil all hit their highest levels in decades, if not ever, during 2005. Commodity prices cooled in the fourth quarter, with the RJ/CRB Index down 1.9 percent since the end of September but the index was still up 16 percent for the year.
Money has poured into the sector this year as hedge funds and more mainstream investors seek to benefit from what some are calling a commodities "super-cycle".
A Barclays Capital poll earlier this month showed a majority of investors planned to increase their exposure to commodities over the next three years, even though soaring commodity prices are seen damaging economic growth prospects.
"I think people are still looking to get into commodities and it is surprising as many fund managers believe we are close to the point where the economy is going to be harmed," said Francisco Blanch, a commodities strategist at Merrill Lynch.
US light crude prices also fell in the fourth quarter, down 10 percent, but still rose 38 percent in 2005 - its second successive year of price rises above 30 percent.
Oil prices are expected to remain at elevated levels next year, with US light crude forecast to average $57.34 in 2006 according to a Reuters poll of 30 analysts, just up on the average for 2005 of $56.70.
High energy prices have not so far been a major drag for companies enjoying record margins and profitability.
Cash-rich companies are expected to increase their spending in 2006 on a combination of capital investments to grow their businesses, merger and acquisitions (M&A) and giving more back to shareholders by way of share buybacks and higher dividends. But that has got some corporate bond holders nervous.
Corporate bond returns, measured by Merrill Lynch's EMU Corporate Bond Index fell 0.7 percent in the fourth quarter, trimming gains for the year to 3.9 percent.
Consensus expectations are for spreads - the premiums corporate bonds pay over government debt - to widen by as much as 15 basis points, or a third above current levels, for higher quality investment grade bonds.
Government bonds also endured a weaker fourth quarter, sparked by the European Central Bank's first rate rise in five years earlier this month.
Merrill Lynch's EMU Government Bond Index was down 0.3 percent in the past quarter but up 5.2 percent in 2005.
Asset allocators expect government bonds to continue easing in the first half of the year before the Federal Reserve's rate tightening cycle slows the US economy, enabling interest rates to ease and help arrest declines.