It was a good quarter to be in the energy business, produce raw materials for industry, or sell cheap, basic consumer products. For most everyone else...

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It was a good quarter to be in the energy business, produce raw materials for industry, or sell cheap, basic consumer products. For most everyone else, the first quarter of 2005 was one to forget.

The blue-chip Dow Jones and Standard & Poor’s 500 indexes both fell 2.6 percent in the quarter; for the S&P, it was the worst quarterly performance in two years. The tech-laden Nasdaq composite index fell 8.1 percent, giving back much of what it had gained in the last weeks of 2004.

Among the 165 Northwest-based companies traded on major exchanges, 119 fell in the quarter. As was the case nationally, tech companies — information technology, biotechnology, telecommunications — lost the most ground.

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The big indexes all closed the quarter on a down note yesterday: The Dow lost 37.17 to close at 10,503.76; the S&P slipped 0.82 to 1,180.59 and the Nasdaq fell 6.44 to finish at 1,999.23.

The quarter wasn’t any better overseas: The S&P Global 1200, an index of stocks from several foreign markets, fell 2.5 percent in the quarter.

Market watchers pointed to several factors for the year’s sluggish start: continued worries about inflation and how the Federal Reserve might respond, an expected slowing of corporate earnings growth and soaring oil prices.

Those concerns overwhelmed more positive news, such as the confirmation this week that gross domestic product rose a healthy 3.8 percent in the fourth quarter.

“The economy is looking pretty good to us, but the tale of the markets has been a different story,” said David Joy, vice president of capital markets strategy for American Express Financial Advisors in Minneapolis.

Looming over much of the negative market activity were high oil prices. Crude oil for May delivery rose 2.6 percent yesterday in New York trading, to close at $55.40 a barrel; oil prices are up 27.5 percent since the beginning of the year.

“High oil prices act as a tax on all other areas of consumption,” said Greg Eisen, small-capitalization stock specialist with ICM Asset Management in Spokane.

Not surprisingly, energy was the quarter’s single best-performing industrial sector: Within the S&P, oil and gas companies were up 18.2 percent, followed by energy equipment and service providers at 11.8 percent. Besides utilities, gainers included health-care companies and purveyors of such things as toiletries and tobacco — “consumer staples” that are less sensitive to ups and downs in the broader economy.

“We’re certainly taking a more defensive posture in the way we’re managing portfolios today,” said Steve Rhone, chief executive of Wentworth, Hauser & Violich, an investment-management firm with offices in Seattle and San Francisco that has $5.2 billion under management.

That became particularly clear after the Federal Reserve raised its short-term interest rate target last week. Although the Fed said higher energy prices did not appear to be cutting into the broader economy’s growth or feeding inflation, it did note that “pressures on inflation have picked up in recent months and pricing power is more evident.”

That, Joy said, was enough to disillusion those who thought the Fed might be nearing the top of its rate cycle: “All of a sudden the market has gotten religion about the fact that the Fed is serious about fighting inflation.”

The top-performing Northwest companies in the quarter, Kent-based Flow International and Extended Systems of Boise, are both turnaround stories of a sort.

Flow, which makes ultrahigh-pressure water equipment for cutting metal and sterilizing food, suffered during the recession. But Flow shares more than doubled in the first quarter, as it raised $65 million in a private stock sale and said it expected sales in the current fiscal year to approach — or even exceed — the record $204.9 million set in 2001.

Extended Systems, which makes software for mobile devices, saw its stock plunge from $137 a share at the height of the tech bubble to below $2 this past fall. However, the company announced several big licensing deals during the quarter and raised its profit outlook, helping send its stock up 96.4 percent.

The generally downbeat market atmosphere didn’t stop U.S. companies from filing for initial public offerings, but they’re having a harder time getting off the ground.

According to The Seattle Times analysis of Bloomberg News data, 46 companies successfully sold stock for the first time in the first quarter — the same number as the first quarter of 2004, but down from 89 in the fourth quarter of 2004. Just seven companies went public last month, the smallest monthly IPO total since January 2004.

The only Northwest company to go public in the quarter was SeaBright Insurance Holdings. The Seattle-based specialty insurer went public Jan. 20 at $10.50; it closed yesterday at $10.34, down 1.5 percent for the quarter.

Two other Northwest companies, Everett-based Zumiez and Boise Cascade of Idaho, filed to go public during the quarter. Zumiez, a mall-based retailer of skateboarder clothing and other action gear, wants to raise up to $57.5 million.

The new Boise Cascade is what’s left after the old Boise Cascade shed its paper and forest-products business, changed its name to OfficeMax and moved its headquarters to Illinois to focus on its retail line. The new company, owned by buyout firm Madison Dearborn Partners, is seeking as much as $575 million in its proposed offering; nearly all that money would go either to OfficeMax or Madison Dearborn.

Another new public company will be a bit of déjà vu. IAC/InterActiveCorp expects to spin out online travel agency Expedia to IAC shareholders in the second quarter. IAC bought Bellevue’s Expedia in August 2003 but has decided its “Internet conglomerate” strategy wasn’t working.

Market observers expect the Fed to continue turning the screws on interest rates — Rhone, for one, expects the key federal-funds rate to be 4 percent or higher by year’s end, compared with 2.75 percent today — and for energy prices to remain high.

“We still have a lot of headwind,” he said.

Joy agreed, saying the market needs a positive surprise — a sustained drop in oil prices, say, or better-than-expected first-quarter corporate earnings — to overcome its lethargy.

Overall profits for the S&P 500 are expected to rise 10 percent this year, he said, compared with a stunning 20 percent last year.

So far, according to New York research firm International Strategy & Investment, first-quarter preannouncements are running 2.2 negative (that is, lower than Wall Street estimates) for every one positive. ISI noted that paradoxically, such high negative-to-positive ratios typically portend stronger, rather than weaker, markets — perhaps because modest expectations are more easily exceeded.

Actual earnings reports will start rolling in mid-April. For now, Eisen said, “There’s no identifiable catalyst to drive the market higher.”

Drew DeSilver: 206-464-3145 or