The S&P 500 has been roaring higher, registering gains of 24% and 23%, respectively, over 2023 and 2024, and right now heading for a new double-digit annual increase. The famous benchmark even reached record levels in recent days, reinforcing the strength of the current bull market rally.

What's been leading the way? Growth stocks, particularly companies involved in the artificial intelligence (AI) boom. Investors are excited about the potential of this game-changing technology and the value it may deliver to companies that got in on it early. The AI market is forecast to reach into the trillions early next decade, and that could result in major growth for companies involved -- and their shareholders.

On top of this, the Federal Reserve lowered interest rates last month and signaled more cuts ahead. Declining interest rates are supportive for companies -- they benefit from lower borrowing costs -- and for consumers' wallets, meaning they can spend more on products and services. That's positive news for growth stocks and the stock market in general.

All of this sounds fantastic, but something the stock market did recently -- something rare -- could suggest trouble ahead.

Concerns about Trump's tariff plan

First, it's important to note that this year hasn't been entirely joyful for investors. Earlier in the year, stocks sank amid concerns about President Donald Trump's import tariff plans. But as the president showed some flexibility on the implementation of certain tariffs and many companies demonstrated their abilities to manage the headwinds, investors grew more confident.

Meanwhile, as mentioned above, AI growth and monetary policy supported this optimism -- and to make the picture even brighter, corporate earnings came in strong. In fact, 79% of S&P 500 companies beat analysts' estimates on revenue and more than 80% surpassed earnings forecasts in the second quarter, according to BlackRock. This greatly exceeds the historical average of about 60%.

All of this also has helped stocks to roar higher, pushing the S&P 500 to multiple new record highs -- and prompting the stock market to do something witnessed only three times in 153 years. As we consider this, it's important to understand valuation measures. Investors often use the price-to-earnings ratio, a look at the current stock price in relation to earnings, or the forward P/E ratio, which considers earnings estimates for the year ahead instead of past earnings. Both are acceptable measures when evaluating a stock.