When examined with a wide lens, no asset class has come particularly close to matching or surpassing the annualized return of stocks. But generating life-changing long-term returns in the stock market often means enduring periods of outsized volatility.

Since December, the iconic Dow Jones Industrial Average (^DJI 0.77%), benchmark S&P 500 (^GSPC 0.83%), and innovation-propelled Nasdaq Composite (^IXIC 1.02%) have been all over the map. After closing at respective record highs between December and mid-February, the Dow and S&P 500 dipped into correction territory by early April. As for the Nasdaq Composite, it entered its first bear market in three years.

Just three months later, the S&P 500 and Nasdaq Composite have achieved fresh record closing highs, with the Dow nearing an all-time high of its own.

Outsized volatility of this magnitude is typically the result of fear and uncertainty from the investing community. While it’d be easy to suggest President Donald Trump’s tariff and trade policy is Wall Street’s biggest concern, there’s actually something much more nefarious (and important) that threatens to drag down the Dow, S&P 500, and Nasdaq Composite.

President Trump’s 90-day reciprocal tariff pause is almost over

There’s no question that investors have been on edge since Trump introduced his tariff and trade policy after the close of trading on April 2. The two days following the unveiling of his tariff policy led to the S&P 500’s fifth-largest two-day percentage decline in 75 years!

Trump’s initial announcement introduced a sweeping 10% global tariff and implemented higher “reciprocal tariff” rates on dozens of countries that have historically sported adverse trade imbalances with America.

On April 9, President Trump announced a 90-day pause on reciprocal tariffs (that went into effect on April 10) for all countries except China, which allowed time for trade negotiations to take place. While some trade deals have been signed or agreed upon over the last three months, this 90-day pause is set to end on July 9, which could open up a new can of worms for the U.S. economy.

One of the issues with tariffs is the possibility of worsening trade relations with allies. Even if key trade partners are willing to accept additional tariffs, there’s the risk of anti-American sentiment in foreign countries resulting in consumers buying fewer American-made goods.

Another worry with tariffs is the potential for the domestic rate of inflation to pick up. Trump’s tariff and trade policy doesn’t do a very good job of differentiating between input and output tariffs. Whereas the latter are placed on finished products being imported into the country, input tariffs are affixed to goods used to manufacture/complete products domestically. Input tariffs threaten to reignite the U.S. inflation rate.

Further, based on a Liberty Street Economics analysis (“Do Import Tariffs Protect U.S. Firms?”) by four New York Fed economists, public companies with direct exposure to Trump’s China tariffs in 2018-2019 had worse future outcomes from 2019 to 2021 than companies with no exposure. On average, sales, profits, employment, and productivity all fell for American companies exposed to the U.S.-China trade war during Trump’s first term.

While Donald Trump’s tariffs offer a valid reason for investors to be concerned about the stock market, there’s a considerably bigger problem at hand that most investors appear to be overlooking.

Is Wall Street’s rally built on a house of cards?

The stock market entered 2025 at one of its priciest valuations in history, based on the S&P 500’s Shiller price-to-earnings (P/E) ratio. In December, the Shiller P/E hit 38.89, which is the third-highest multiple during a continuous bull market when back-tested to January 1871.

The five previous instances when the Shiller P/E ratio surpassed 30 and held that multiple for at least two months were eventually (keyword!) followed by declines in the Dow, S&P 500, and/or Nasdaq Composite ranging from 20% to 89%. In other words, the stock market has a poor track record of sustaining extended valuations.

The one factor that can support premium valuations is strong growth in corporate earnings. If the publicly traded companies responsible for driving the stock market higher are delivering rock-solid earnings-per-share (EPS) growth, it may be possible to maintain aggressive valuations.

There’s just one problem: The earnings quality of these influential businesses is worse than you probably realize.

Ideally, a company’s operations should do the talking. But if you dig into the earnings reports of America’s most influential businesses, you’ll discover a number of ways profits have been (legally) bolstered by non-innovative or unsustainable methods.

For example, I regularly harp on Apple (AAPL 0.52%) as a company that’s pulled one heck of a legal smoke-and-mirrors trick on its investors. Don’t get me wrong, Apple has historically been at the leading edge of the innovative curve, and its iPhone has been the top-selling smartphone in the U.S. since introducing a 5G-capable version in the fourth quarter of 2020.

But Apple’s not-so-subtle secret to success has been its world-leading share repurchase program. Since initiating a buyback program in 2013, it has spent $775 billion to retire more than 43% of its outstanding shares.

Between fiscal 2022 and fiscal 2024 (Apple’s fiscal year ends in late September), Apple’s net income declined from $99.8 billion to $93.7 billion. However, thanks to buybacks and a lower outstanding share count, its EPS fell only from $6.11 to $6.08. It has been able to completely mask a greater than $6 billion decline in net income through buybacks and has seen its share price climb by 53% over the trailing-three-year period, as of July 2, 2025.

But this isn’t just a buyback problem masking a lack of growth. We’re also witnessing growth stocks rely on unsustainable forms of income as a significant portion of their profits.

Palantir Technologies (PLTR 1.62%) has arguably surpassed Nvidia as Wall Street’s most-revered artificial intelligence (AI) stock. Palantir’s sustainable moat, its multiyear government contracts via Gotham and predictable enterprise subscriptions from Foundry, and its 25% to 35% annual sales growth all point to its EPS growth being driven by its operations.

However, Palantir has consistently relied on interest income earned from its large cash pile to buoy its net income. During the March-ended quarter, 23% of Palantir’s $217.7 million in net income was traced back to interest income earned on its cash. This is a notable percentage of its net income coming from an unsustainable and non-innovative source — and it’s particularly egregious, given that Palantir shares are changing hands at 106 times trailing-12-month sales!

Electric-vehicle (EV) maker Tesla (TSLA 0.04%) is another perfect example of poor earnings quality in action. Ideally, Tesla’s first-mover EV advantages, along with its ongoing shift to diversify its operations into energy generation and storage, are what bolster its bottom line.

Yet, during the March-ended quarter, Tesla’s $589 million in pre-tax income derived entirely from unsustainable sources. It generated $595 million from regulatory tax credits sold to other automakers (which it receives for free from governments), as well as $309 million in net interest income, after interest expenses. If not for tax credits and net interest income, Tesla would have reported a $315 million pre-tax loss in the first quarter.

Wall Street is littered with stories similar to this, where companies have relied on unsustainable or non-innovative channels to mask a true lack of growth. With the Shiller P/E pushing to one of its priciest valuations in 154 years, poor earnings quality for America’s most influential businesses is what should really worry investors.

Since the pandemic began, the stock market has proven to be erratic, plunging at times only to quickly recover and launch into fresh bull markets. Today, with plenty of new uncertainty due to issues including President Donald Trump’s trade wars, U.S. fiscal concerns, and the concerning trajectory of the U.S. economy, more volatility is certainly on the docket. That’s why investors may want to check out some dividend stocks, which can provide reliable passive income. The returns of dividend stocks can be much more dependable than those of non-payers, especially if you choose ones with good track records and the ability to grow their earnings and free cash flows so they can keep regularly increasing their payouts.

Here are two dividend stocks that meet those criteria that investors can feel comfortable buying and holding for the next two years.

Nike: A turnaround that will hopefully pay investors more for their patience

The iconic footwear and apparel company Nike (NKE 0.22%) has been less than iconic as a stock lately. It’s now down by about 39% over the last five years (as of June 4). Intensifying competition in the footwear and apparel space, struggles with the brand, and an excessive focus on digital promotions and sales have resulted in the company underperforming in recent years.

To change its trajectory, the board hired longtime Nike veteran Elliot Hill out of retirement to take the helm, and Nike is now deeply entrenched in his turnaround plan. Hill is focused on getting the company back to what it does best — renewing its intense focus on the brand, leading the way on product innovation, and reactivating and improving its sales relationships with wholesalers. Hill also said earlier this year that Nike will be focused on five product areas — running, basketball, football, training, and sportswear — and three markets: the U.S., the United Kingdom, and China.

But as some analysts have pointed out, Nike’s turnaround could take longer than expected, especially if the global trade war continues or if the U.S. economy tips into a recession. A longer turnaround could make it difficult to entice investors to buy and hold the stock, which is why Nike is likely to make paying and raising its dividend a priority. Its yield of about 2.6% at the current share price isn’t bad, but it trails most Treasury yields right now and over the past few years.

In November, Nike increased its quarterly dividend by 8%, marking the 23rd consecutive year the company has hiked the payout. In a couple more years, Nike is likely to join an exclusive club — the Dividend Aristocrats®, which are S&P 500 companies that have increased their payouts for a minimum of 25 straight years. (The term Dividend Aristocrats® is a registered trademark of Standard & Poor’s Financial Services LLC.)

Its ascension into that group will give Nike added some credibility among dividend investors. Nike also has a trailing 12-month free cash flow yield of 5.66%, more than double its current dividend yield.

Nike has a good dividend track record and clear incentives to keep raising its payouts to reward shareholders for their patience. If its turnaround is successful, that should also enable the company to grow earnings and free cash flow, which will also bolster its capacity to pay higher dividends.

Wells Fargo: Finally on the offensive after seven years

If you’ve followed Wells Fargo (WFC 1.99%), then you know that the bank has been on a bumpy ride over the last decade. In 2016, it came to light that large numbers of employees at the bank had been opening banking and credit card accounts in customers’ names without those customers’ authorization. The scandal evolved into a reputational nightmare for Wells Fargo and cost it billions of dollars in fines and lost profits. Regulators put various restrictions and consent orders on the bank to monitor its actions. In addition, the Federal Reserve in 2018 put an asset cap on it, preventing it from growing its balance sheet above $1.95 trillion — limiting its ability to expand, pursue acquisitions, and make more money. 

In 2019, the bank brought on Charlie Scharf to take over as CEO, and he did a tremendous amount of work to overhaul the bank’s regulatory infrastructure and leadership team. Scharf also significantly cut expenses, sold off non-core assets, and ramped up higher-returning businesses like investment banking and credit card lending.

This year, after Trump returned to the White House, banking regulators under his administration quickly terminated the consent orders that were put in place to monitor its behavior in the wake of the scandal, and just recently lifted the asset cap. That’s a massive deal for the bank, which can now begin to grow its balance sheet again and go on the offensive in the financial services market.

During the pandemic, Wells Fargo was one of the few banks forced to cut its dividend due to regulations put into place by the Federal Reserve. While the bank has been able to regrow its payout, its yield still sits in the bottom half of its peer group.

JPM Dividend Yield data by YCharts.

Furthermore, broader deregulation of the banking sector from Trump and his administrators is likely on the way. I suspect the largest banks will eventually have much lower regulatory capital requirements than they have now, which will allow them to return more capital to shareholders. Furthermore, Wall Street analysts on average currently expect Wells Fargo to grow its diluted earnings per share by about 8% this year and by close to 14% next year, according to data provided by Visible Alpha. Over the last 12 months, Wells Fargo’s dividends only consumed about 31% of earnings, so it should have plenty of opportunities to keep growing its payouts in the coming years.