May 5, 1985

A day after watching his Mets break out of a hitting slump in a 9-4 victory, Manager Dave Johnson presided over an embarrassing relapse today that affected not only the team's hitting, but its pitching as well. The Cincinnati Reds collected seven hits off three pitchers in the sixth inning, scored 10 runs and went on to embarrass the Mets, 14-2, before 21,362 fans at Riverfront Stadium. The winning pitcher, Jay Tibbs (1-4), held the Mets to four hits while the Reds battered four Mets pitchers for 14. Roger McDowell (2-1) took the loss for New York, but Doug Sisk took the brunt of the Reds' attack.

GOVERNOR O'NEILL waded into the debate on the Federal budget last week, journeying here to ask a Senate committee to freeze 1986 transportation spending at current levels rather than reduce or eliminate funds for Amtrak, commuter rail and bus lines, and highway and bridge projects. The Governor's 10-minute appearance in a Capitol Hill hearing room was on the same day that the Senate began voting on a compromise budget plan endorsed by President Reagan. Hours after Mr. O'Neill had addressed the Appropriations Subcommittee on Transportation and Related Agencies on Tuesday morning, the Senate approved, 50 to 49, a resolution that would end Amtrak subsidies and force deep cuts in mass-transit and road-building programs. It was the first of what is expected to be a long series of Congressional votes this spring on a the 1986 spending package.

End of Great Expectations Stock investors thrive on great expectations but since the Dow Jones industrial average closed at a record 1299.36 on March 1, their expectations have been anything but great. Last week, for example, the market, as measured by the Dow, closed at 1247.24, down 27.94 points on the week and 52.12 points from its peak close. ''The major reason the market has been weak is that investors have had their expectations shattered in recent weeks,'' said Monte J. Gordon, research director at the Dreyfus Corporation. People ''expected the economy to rise at a reasonable non-inflationary rate, but it isn't rising at all,'' he said. ''And, to make matters worse, corporate profits have been disappointing.''

THE sharp escalation in commercial rents in Manhattan in the last few years poses a curious dilemma for co-op buildings that rent such space. Instead of being able to enjoy this unexpected bonanza, some boards of directors are finding that it is jeopardizing the co-op's favorable tax status. At issue is the so-called ''80-20'' rule, which requires that a co-op's income for maintenance paid by tenant-shareholders in the residential portion of the building must be at least 80 percent of total revenues. When the 80-20 balance is maintained, tenant-shareholders may deduct from their taxable income the portion of their maintenance payments that goes to cover the building's real-estate taxes and interest costs on the underlying mortgage. They also may defer payment of a capital-gains tax if they sell their apartment and buy another, and qualify for the once-in-a-lifetime capital-gains tax exemption of $125,000 if they sell when they are 55 years old or older.

''IN the long run,'' said one Congressman, ''this becomes a very small issue.'' But then, he was a Democrat. Republicans were so angered over last week's seating of Frank McCloskey, a Democrat from Indiana's Eighth District, that they stormed out of the House of Representatives, fuming.