NEW YORK -- The annual spate of year-ahead forecasts by large investment firms began yesterday with T. Rowe Price, the large Baltimore mutual fund company, predicting that the stock market could finish 1991 up "less than 10 percent" and that bond prices could fall slightly after rising during the first half.
The two-hour presentation by a half dozen of Price's fund managers comes as stocks are showing year-to-date losses for the first time since 1981 and bond funds are being plagued by rising defaults and interest rates.
Last year, presentations were laden with warnings that investors shouldn't expect too much, said George Collins, Price's chief executive. This year, the concern was for "investors' being overly discouraged."
Price fund managers began 1990 optimistic about low-quality, high-yield "junk" bond funds and small stock funds, but both categories fared poorly. This summer, T. Rowe Price's benchmark small-stock New Horizons fund suffered its fourth-worst quarterly decline since 1960, and Price's junk fund has lost 11.5 percent since Jan. 1.
Results from these areas should improve in the second half of the year, fund managers said, as the economy comes out of a mild recession already under way.
Price economist Paul Boltz said business has already begun to contract and will continue to do so for one or two more quarters but that the pain should be muted. Unemployment should remain under 7 percent -- its average during the first half of the 1980s -- he said.
Moreover, Mr. Boltz said, a wave of bankruptcies is unlikely and fears of debt-induced asphyxia are overdone.
For stocks, the near-term outlook remained bleak.
"I think the bear market has further to run," said John Laporte, manager of the New Horizons Fund. But he predicted a rebound as the country begins to emerge from recession, leading to modest gains.
"Neither the bulls nor the bears will be jumping for joy when the year is over," he said.
In the bond market during 1990, "the more risk you took, the less return you got," said Edward Taber III. The best results were in overseas markets, because of the dollar's decline, and domestically, in government guaranteed debt.
The same results should prevail in 1991, Mr. Taber said, with money market funds, short-term investment grade bonds and Government National Mortgage Association funds providing returns of 5 percent to 7 percent.
In overseas equity markets, M. David Testa, chairman of Rowe Price-Fleming International, predicted that the fastest growth, and best equity markets, would be in Hong Kong, Thailand, Indonesia, Singapore and South Korea.