At an economic forum Friday, Point Loma Nazarene University economist Lynn Reaser presented a report card for how she believes investments will perform next year.
Commercial real estate: A. Declining vacancy rates should bolster rising prices next year. With retail vacancy rates at below 4 percent, there also be an upswing in retail construction.
Residential real estate: B. Reaser says home prices should rise 4 percent rise next year, which is slow by historic standards, but enough to allay fears of another bubble.
Undeveloped land: B-. Although a rebound in construction should drive land prices up, in California "the value of land now hinges on access to water," Reaser said, which could be dicey if the drought continues.
U.S. stocks: B. Reaser predicts 4 percent growth in the Standard & Poor's 500 next year, or less than half of this year's 10 percent jump, but with enough opportunities to keep investors happy.
Equities in advanced markets: B. The economies in Europe and Japan are much weaker than the United States right now, but Reaser projects modest increases in their stock markets. "But investors might bear significant risk if they are too optimistic," she warns.
Equities in emerging markets: B+. Although Russia seems poised on the brink of recession and the Middle East is gripped by conflict, Reaser predicts that the gross domestic product of developing markets will grow an average of 4.8 percent next year, led by China at 7 percent; India, 5.9 percent; and Africa, 5.4 percent.
Investment grade bonds (T-bills and blue chip bonds): C-. Reaser predicts that interest rates will slowly begin to inch up by next summer, which will erode the value of bonds.
High-yield bonds: D. Coupled with rising interest rates, the high risk in so-called "junk bonds" can be dangerous.
Municipal bonds: B. Because cities need to raise money, they may offer more attractive interest rates to attract buyers. They will be relatively safe investments, with few defaults.
Commodities: B. Commodity prices should rise next year as global economies improve, but the low-inflation environment will dampen their growth.
Arts, antiques, collectibles: B+. Reaser warns that some prices seem sky-high, especially for rare artworks, which can sell for tens of millions of dollars. But she adds that so far, they manage to keep attracting wealthy buyers.