Are we in a bull market, or not?

Nearly seven years ago, the U.S. stock market began a historic rally. After bottoming out in March 2009, the S&P 500 gained 204% through December 2014.

But this year, the rally has fizzled out. The S&P 500 has lost 1% since January. As you can see in the chart below, stocks have gone nowhere in 2015.

Last week, the S&P 500 dropped 3.8%. It was the worst week for U.S. stocks since late August.

•  Although stocks have failed to go up in 2015…

They haven’t gone down much, either. The S&P 500 is currently just 3.2% below its all-time high. But beneath the surface, the stock market is weakening…

The average stock in the S&P 500 is down 4.4% this year…and is 19.2% below its 52-week high. On Monday, just four stocks on the New York Stock Exchange hit new 52-week highs…while an incredible 365 stocks hit new 52-week lows.

•  A handful of giant stocks have kept the S&P 500 from falling…

The S&P 500 is weighted by company size. Bigger companies comprise more of the index than smaller companies.

For example, Apple (AAPL), the largest company, makes up 3.7% of the S&P 500. While Chipotle Mexican Grill (CMG), the 256th-largest, makes up just 0.1%.

These giant stocks are propping up the S&P 500. For example, Google (GOOGL), the second-biggest company in the S&P 500, is up 44% on the year. Microsoft (MSFT), the third-biggest, is up 19% this year. Amazon (AMZN), the sixth-biggest, is up 112%. Facebook (FB), the eighth-biggest, is up 34%.

•  E.B. Tucker, editor of The Casey Report, called the end of the bull market months ago…

The title of his September issue of The Casey Report was, “R.I.P. 2009 -2015 Bull Market.”

E.B’s call has been dead-on. None of the major U.S. markets have set new highs since the summer. Most stocks are actually falling.

Here’s E.B.:

The S&P 500 is basically flat on the year. The headlines read, “Everything’s fine.” But everything is not fine. If you take a close look at market, you will see it’s tired, out of shape, and teetering on collapse.

Google, Amazon, and Facebook are part of a small group of stocks that propel the S&P 500. This is possible because these are massive companies. Amazon, for example, is worth $309 billion. It’s nine times larger the average stock in the S&P 500.

Plus, these giant stocks that are propping the market up are extremely expensive. E.B. explains:

The average stock in the S&P 500 index has a price to earnings (P/E) ratio of just over 19. Google has a P/E ratio of 36. Facebook has a P/E ratio of 105. Amazon has an off-the-charts P/E ratio of 955.

These sky-high valuations aren’t scaring away investors. They keep buying these stocks because they think these companies will give them safety during a downturn. That’s why these stocks are flying high while hundreds of other stocks are plumbing new lows.

We’ve seen this happen before. It never ends well.

•  Natural gas just hit a 16-year low…

Yesterday the price of natural gas fell 5.0%. It’s now down 38% on this year and trading at its lowest level since 1999. Natural gas heats about one-half of U.S. homes.

Falling gas prices have hit major gas producers hard…

Chesapeake Energy (CHK), the second-largest U.S. gas producer, has plunged 81% this year. It’s trading at its lowest since 2000.

Anadarko (APC), the third-largest U.S. gas producer, has dropped 41%. It’s trading at its lowest since 2010.

•  Natural gas is one of many commodities in a brutal bear market right now…

The Bloomberg Commodity Index, which tracks 22 different commodities, has declined 26% this year. It’s at its lowest level since 1999.

Yesterday, The Wall Street Journal explained why natural gas prices are crashing.

The natural-gas market is oversupplied due to weak demand and continued robust production. Stockpiles stood at 3.88 trillion cubic feet as of Dec. 4, near the record high reached last month and 6.5% above average levels for this time of year. Some traders and analysts say the industry could run out of storage space for gas by mid-2016.

The warm winter has also hurt gas prices.

Weather forecasts released Tuesday showed warmer temperatures in the next two weeks than previously forecast.

Analysts say that even if a bout of cold weather arrives, there is ample gas in storage to meet any spike in consumption.

•  Switching gears, U.S. companies are getting more “creative” with their accounting…

On Monday, The Wall Street Journal reported:

A financial obfuscation of the dot-com era is making a comeback: Hundreds of U.S. companies are trumpeting adjusted net income, adjusted sales, and “adjusted Ebitda.”

About one in 10 major securities filings this year used the term adjusted Ebidta – or adjusted earnings before interest, taxes, depreciation and amortization – up from one in 40 a decade ago. About a quarter of earnings-related filings this year included figures that don’t comply with generally accepted accounting principles, or GAAP, as well as more standard measures…

The Wall Street Journal continues…

Scana Corp., a utility holding company, strips weather from its results to smooth out the effects of unusual warm and cold spells…

Restaurant chains like Potbelly Corp., burger joint Shake Shack Inc. and chicken-and-biscuits seller Bojangles Inc. exclude much of the costs of opening new stores. Telecom companies like AT&T and Sprint Corp. omit the multibillion-dollar depreciation bills that reflect the cost of upgrading their networks.

Of course, the companies claim these “adjusted” measures give a more realistic picture of their financial results. That’s true in some cases. However, management typically has a strong incentive to “fudge” earnings numbers. High earnings can cause a company’s share price to rise…which can cause management bonuses to rise.

•  Companies are using accounting tricks to seem more profitable…

Officially, earnings for companies in the S&P 500 fell 0.1% during the third quarter. However, if all companies used standard reporting, earnings would have fallen by 13%, according to The Wall Street Journal.

•  This is why Nick Giambruno, editor of Crisis Speculator, recommends using dividends to measure a company’s financial health…

Here’s Nick:

Dividends are the most reliable and simple indicator of true value. You can believe in the cash payments landing in your pocket.

Reported earnings aren’t as reliable: it’s too easy for a company’s management to pump them up by choosing the right accounting formalities…

Also, accounting and reporting standards vary widely across the world. Dividends, on the other hand, are actual cash payments. They are real, and nothing is easier to measure or harder to fake.

Nick uses dividends in the “Value Radar,” his proprietary tool for finding companies that pay big income streams and are trading for pennies on the dollar. In the last couple months, the Value Radar has helped Nick identify two undervalued companies that pay 14%+ dividends. Nick rates both companies as Buys today. You can learn about them by taking a risk-free trial of Crisis SpeculatorClick here to learn more.

Chart of the Day

Dispatch readers know oil is in a brutal bear market…

The price of oil has plunged 67% since peaking at just over $106 a barrel last summer. On Friday, oil hit its lowest level since 2008.

Low oil prices have slammed major energy companies. The Energy Select Sector SPDR ETF (XLE), which tracks the performance of major U.S. oil and gas companies, has fallen 39% since oil peaked last summer.

However, by one measure, U.S. energy stocks are still the most expensive they’ve been in 16 years…

Today’s chart shows XLE as a ratio of the price of oil. The higher the ratio, the more expensive U.S. stocks are relative to the price of oil.

As you can see, this ratio is at its highest level since 1999. U.S. energy stocks are 83% more expensive than their historic average, according to this ratio.

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