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Equity markets stumbled to the close on the first trading day of 2005, not an auspicious start but hardly a deal-breaker for the year. An early morning charge on lower oil prices and lingering enthusiasm from the just-closed prior year didn't last long once the major indices had again made new 52-week highs.

Still, day one of the year is not destiny for the markets, even in the short term. Don't forget that the

Dow Jones Industrials

dropped almost 50 points on the first day of trading last year only to gain 300 within weeks.

On Monday, the Dow lost almost 54 points, or 0.5%, to close at 10,729.43 after hitting a morning high of 10,867.39. The

S&P 500

lost 0.8% to finish at 1202.08 after hitting a high of 1217.90. And the

Nasdaq Composite

suffered the most, falling 1.1% to 2152.15.

The Nasdaq is putting fear in the hearts of technicians as day after day it sets a new 52-week high -- which are almost 3 1/2-half year highs as well -- and then closing lower. With today's move to 2191.60, it marked the eighth consecutive higher intraday high for the Nasdaq even as the index failed to hold onto its gains. The index has closed higher on four of those days but only once at the high for the day.

In sum, the Comp is showing signs of being overextended.

On a slightly more positive note,

Business Week

released its annual survey of market watchers. Last year's group was close on the Dow, with the median predicting that the blue-chip average would end 2004 at 10,750, just a bit short of the mark. The Dow median forecast for this year's crowd is 11,350, or just a 5% gain by the end of 2005. Predictions ranged from a high of 12,750 by Peter Trapp at Bifrost Partners to a low of 8000 from Bernie Schaeffer.

First Shall Be Last

The big winners of 2004 were the big losers on Monday. Energy and steel stocks were down across the board, as the price of oil dropped more than $2 a barrel in the morning and finished down $1.32 to $42.13.

Devon Energy


lost 4.4%,



tumbled 3.1% and



fell 3.6%.

The drop in oil prices has hit not just oil producers and their equipment vendors but also oil tanker operators. As mentioned

here at the end of October, tanker companies like




Teekay Shipping




( OMM) were growing vulnerable to a slowdown as the stocks had doubled along with the price of oil and temporary supply disruptions in the U.S. Since then, Frontline has dropped to $42.48 from $45.94; Teekay Shipping declined to $40.44 from $46.64; and OMI fell to $15.83 from $17.94.

contributor Gary D. Smith noted on Monday that tanker rates have plummeted 75% since peaking in November. He foresees further damage for the tanker stocks.

Retailers were a rare standout Monday, as



said same-store sales rose 3% in December and the stock gained 1%.

No Cause to Pause

The economic news was not good, especially as investors look ahead to Friday's report on payroll growth in December. Construction spending fell 0.4% in November instead of increasing, as economists had expected. And while the overall activity barometer of the Institute of Supply Management's manufacturing index looked good, within the report signs of extreme weakness in hiring and rising materials costs cast a foreboding shadow on Friday's employment report.

The overall index rose to 58.6 for December from 57.8 the previous month. Any reading over 50 indicates economic activity is expanding. The employment subindex dropped to 52.7, the lowest reading in over a year, from 57.6. The prices-paid index remained elevated at 72, though it was down from 74 in November.

Rich Yamarone, director of economic research for Argus research, says the ISM employment drop is just one sign pointing to a weak payrolls number on Friday. He's predicting businesses added just 65,000 jobs in December vs. the consensus forecast of 180,000. If he's correct, the bond market will party like its 2004 and the yield on the 10-year note, which was virtually unchanged on Monday at 4.22%, could move back below 4%.

A weak jobs report also could put the

Federal Reserve

on hold from raising rates at its next meeting. The central bank's Open Market Committee will not have the benefit of another employment report before it next meets Feb. 1-2.

Still, nobody at the Fed has given any real indication yet that Chairman Alan Greenspan is going to do anything but issue another hike next month.

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, was on the stump Monday and he wasn't helping the case for a pause when he said the Fed likely would keep hiking rates even if signs of stronger inflation did not emerge.

Delivering his 2005 economic outlook at a bankers meeting in North Carolina, Lacker said he expected that the economy would grow 3.5% to 4% with core inflation of 1% to 2%.

Explaining the Fed's five rate hikes last year, Lacker said that "such a policy shift was inevitable, in the sense that the strengthening recovery was going to require real interest rates to rise, whether or not inflation accelerated."

Lacker said the "key point" as far as the Fed was concerned was "that real short-term interest rates have to vary in response to shifts in economic fundamentals, even in the absence of noticeable fluctuations in inflation."

In other words, the Fed can continue its course of measured interest rate hikes even if inflation stays subdued. And with signs that inflation may accelerate in Monday's ISM report, among other places, the hikes could come even faster in 2005 than in 2004.

In keeping with TSC's editorial policy, Pressman doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

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