The government had just reported that more than 650,000 jobs were lost in the prior month. The Dow and S&P 500 were each down more than 50% from their October 2007 peaks.
And there seemed to be no end in sight to the doom and gloom on Wall Street and Main Street.
Flash forward 10 years, and it's been mostly blue skies for investors since then. Thanks to steady economic growth and a surge in corporate profits, the Dow and S&P 500 are up more than 300% since they hit bottom on March 6, 2009.
But now that this bull market is approaching its 10-year anniversary, some are wondering how much longer the rally can last. Stocks have soared so far in 2019 following the tumultuous fourth quarter of last year.
That's led to new questions about whether stocks are too pricey.
The S&P 500 had been trading at 18 times 2019 earnings estimates before stocks cratered last fall. That multiple fell as low as 14 following the huge sell-off. But it's now at 16 after the index started 2019 with a 12% pop.
"What's happened in this rally is that valuations have crept back up," said Hugo Rogers, chief investment strategist with Deltec. "Stocks were oversold last year but now they are no longer cheap."
Earnings growth is expected to slow this year after a strong 2019. That's partly due to the fading effect of corporate tax cuts. But economic weakness in Italy and Germany, worries about Brexit and slowing growth in China and India are causes for concern, too.
All of that could hurt earnings for huge multinationals in the Dow and S&P 500 — companies like Apple (AAPL), Caterpillar (CAT), Coca-Cola (KO) and Procter & Gamble (PG).
And even though the Federal Reserve has already signaled that it will probably not raise interest rates this year, the US economy — and corporate earnings — may start to slow because of the lag from prior rate hikes. The Fed has boosted rates seven times in the past two years. That will hurt companies with a lot of debt in particular.
"The markets may be topping out," said Randy Swan, CEO of Swan Global Investments. "The damage from the Fed's rate hikes could already be done."
Of course, it's fair to point out that bull markets aren't like a carton of milk. They don't have an expiration date. Stocks could keep climbing as long as earnings and the economy are growing.
But complacency may be setting in as investors continue to ignore risks.
"With the benefit of hindsight, it seems all too obvious how and why trouble struck," wrote strategists at DWS. "Most recessions and bear markets are not like that — they tend to catch central bankers, investors and even economists by surprise. All this argues for a bit of caution."
2. Jobs, jobs, jobs: Last month, analysts watched the US jobs report for signs of damage from the partial government shutdown. But employment growth in January was surprisingly strong. The US economy added 304,000 jobs — the 100th straight month of gains.
Another solid report could juice markets, which finished February on a positive note. The Dow increased 3.7%. The S&P 500 finished up 3%, and the Nasdaq ended up 3.4%.
Good economic news would add to investors' optimism. They're already feeling good about the likelihood of a trade deal between the United States and China, as well as the Fed's decision to pause interest rate hikes.
3. Retail's haves and have-nots: The verdict is in from last year's holiday shopping stretch: There's a widening gap between retail's best and worst performing companies.
A flood of top retailers reported uneven results this earnings season. Some, including Walmart (WMT), TJX (TJX) and Best Buy (BBY), thrived. But L Brands (LB)-owned Victoria's Secret, JCPenney (JCP) and Gap, inc. (GPS) struggled.
Department chains Macy's (M) and Nordstrom (JWN) faced pressure in their full-price divisions. But those companies found strength through their discount stores.
Target (TGT), Kohl's (KSS), Kroger (KR) and Costco (COST) all report earnings this week. Target has become a formidable competitor to Amazon (AMZN) and Walmart because of its lineup of trendy private-label clothing, and its sharp focus on trying to win over moms and dads. Costco has also succeeded because of its low prices on groceries and household basics, and through the popularity of its trademark Kirkland Signature brand.
4. Coming next week:
Monday — Salesforce (CRM) earnings
Tuesday — Target, Kohl's and Ross Stores (ROST) earnings, US ISM non-manufacturing index
Thursday — Kroger, H&R Block (HRB), Costco earnings
Friday — US jobs report
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