Wall Street has been on a roller-coaster ride recently. According to the article, “Over the last month, the Dow Jones Industrial Average (^DJI 0.75%), S&P 500 (^GSPC 0.58%), and Nasdaq Composite (^IXIC 0.55%) have endured historic bouts of volatility.” One example: the S&P 500 recorded its fifth-largest two-day percentage decline on record (-10.5%) on April 3 and April 4 — then posted its largest single-day point gain on April 9.
Blame has quickly shifted to President Donald Trump’s tariff policy. “President Trump’s tariff plans lead to short-term jitters and uncertainty,” the article explains. And understandably so — “Trump’s ‘Liberation Day’ announcement on April 2… implemented a 10% global tariff,” with “higher ‘reciprocal tariffs’ on dozens of countries.” While the administration paused these tariffs for most countries (except China) as of April 9, the damage to investor confidence was already done.
On the surface, tariffs seem like a straightforward economic strategy. As the article states, “They’re put in place to protect domestic jobs and help make American goods more price competitive.” But real-world consequences aren’t so clean-cut.
The piece continues, “Tariffs run the risk of straining or worsening trade relations with our allies and other key partners, such as China.” Other countries might retaliate, or even stop buying American products altogether.
There’s also the threat of inflation. “Trump’s tariffs have the potential to reignite the prevailing rate of inflation, which has fallen from a peak of more than 9% in 2022 to less than 3% currently.” The administration’s lack of clarity on tariff targets, the type of tariffs (output vs. input), and sudden changes have led to more confusion than confidence. “There’s been no consistent message or game plan from the administration,” the article notes.
Earnings Quality: The Real Threat Wall Street Should Worry About
But even with the noise surrounding tariffs, there’s a much larger concern lurking underneath — and it has far more staying power.
“Wall Street has a far bigger problem: Earnings quality,” the article warns. “Though investors are seemingly waiting on the edge of their seat for tariff news, this is likely to be a short-term issue… Beyond Trump’s tariffs lies a true headwind and test of the stock market’s character.”
What drives long-term market performance is company fundamentals — “the ability for companies to grow their sales and profits over time.” But a deeper look shows worrying trends in earnings quality, even among market darlings.
Let’s start with Tesla. It’s seen as a growth powerhouse — “a fast-growing electric-vehicle (EV) manufacturer that’s wisely riding its first-mover advantages.” But the reality? “Tesla would have announced a pre-tax loss for the first quarter without the aid of $595 million in automotive regulatory credits.” Those credits, the article points out, “are given to it for free by governments.”
“A former trillion-dollar company shouldn’t be this reliant on unsustainable income sources.”
And then there’s Apple, the crown jewel of consumer tech. Though its services segment is growing, “its collective growth engine… has stalled.” The article reveals that “Apple’s net income has declined from $99.8 billion in fiscal 2022… to $93.7 billion in fiscal 2024.” The company’s enormous share buyback program has “helped to support or lift its EPS,” masking this decline.
Palantir Technologies, the AI darling, isn’t immune either. Despite high revenue growth and government contracts, “Palantir generates a sizable percentage of its pre-tax income from interest earned on its more than $5.2 billion in cash.” In fact, $196.8 million of its $489.2 million in 2024 came from interest income — that’s “40% of its pre-tax income from a noninnovative source.”
This isn’t just a company-level issue — it’s systemic. “Earnings quality is a serious issue considering the stock market entered 2025 at its third-priciest valuation when back-tested 154 years.” The S&P 500’s Shiller price-to-earnings (P/E) Ratio “almost hit 39 in December 2024.” For context, the average since 1871 is just 17.23.
“The five previous instances where the S&P 500’s Shiller P/E topped 30 were all eventually followed by declines of at least 20%,” the article states.
Market Valuations Can’t Stay Sky-High Forever
Investors hoping that high valuations can be sustained by financial engineering or one-time gains may be in for a wake-up call. “Premium valuations aren’t tolerated over the long run, which makes earnings quality all the more important with the market at a historically expensive multiple.”
The conclusion is clear: “Unless America’s most-influential businesses begin delivering where it counts, there will be bigger fish to fry than tariffs.
