Record highs can be cause trepidation when they're being propelled by good vibes and happy feelings. But the start of earnings season should remind us that old-fashioned fundamentals are still driving this four-year-old bull market.

The S&P 500 rose 1.1% this week, while the Dow Jones Industrial Average gained 0.9% and the Nasdaq Composite rose 0.5%. The S&P and the Nasdaq both hit record highs during the five days of trading.

Despite the all-time highs, investors aren't popping out the Dom Pérignon; actually, they seem to be on tenterhooks. A news report on Thursday suggested that OpenAI's revenue growth hasn't actually been stupefying but merely astronomical, which sent the whole artificial-intelligence complex lower, with Nvidia down more than 3% and Oracle, which builds and runs data centers for OpenAI, off more than 5% that day. Then, in the cold light of Friday morning, components of the news story were second-guessed and re-explained, and shares mostly rebounded.

That just about sums up the state of the AI trade these days, according to Andy Goldberg, chief investment strategist at Nomura Asset Management International. "The cone of possibilities for where AI can end up in five years is very wide," he says, using the imagery of hurricane forecasts. "That is just going to create a lot of volatility."

This dynamic is exacerbated by the fact that OpenAI and Anthropic, the two most important companies in the AI ecosystem, aren't publicly traded, and have not gone out of their way to transparently share information with the public -- leaving investors with a massive blind spot and forcing swift reactions to confusing news reports. More generally, a lack of reports from OpenAI and Anthropic leaves the picture gleaned from earnings season glaringly incomplete, as if Washington Crossing the Delaware was missing George.

But we have to make do with the information we have, and the numbers are expected to be fantastic. S&P 500 earnings growth for the third quarter is expected to come in at 29.5%, which would mark the third straight quarter of growth above 25%, per FactSet. What's notable is that analysts have gotten increasingly excited about the results as the quarter has gone on. Typically, earnings growth estimates come down by 2.5% ahead of the reports, with companies working to push expectations down to levels they can surpass.

This quarter, however, a record-high number of companies have issued positive guidance, and overall analyst estimates have actually increased by 1.4%, with the boosts particularly pronounced for companies in the energy and information technology sectors. That said, this isn't just about a handful of memory stocks and refiners; all 11 S&P 500 sectors are expected to show year-over-year revenue and earnings growth, something that was last seen in 2021, according to Yardeni Research.

That creates both potential risks and opportunities when earnings season kicks off with JPMorgan Chase on Tuesday. "There's a higher bar than you'd traditionally see," says Jeffrey Schulze, head investment strategist at Franklin Templeton Institute. "But given the broad-based strength and the strong guidance, I still think it's going to be a quarter that's going to beat expectations."

And those beats might actually get rewarded. Even with the S&P 500 hovering just below all-time highs after hitting a fresh record on Tuesday, the forward price/earnings ratio for the index is around 19 -- down from 23 a year ago and 22 at the start of the year. That means there's more room for investors to reward companies that beat, according to Schulze. "I don't think it's going to take much for markets to rise in the fourth quarter, which is a seasonally strong period," he says.

Even rising bond yields might not be the fear factor investors think they are, since they partially reflect the overall economic strength that's also boosting earnings. Yes, the 10-year Treasury yield briefly rose as high as 5.36% this week, the highest since 2002. That critical rate has risen more than a full percentage point this year, which is certainly one of the reasons valuations have slipped. But perhaps that's a good thing. "All I can say is, thank God interest rates went up," Goldberg says. "There's already talk about whether this is a bubble. But interest rates are like this secret guardian angel that have kept everything chill and kept the market from getting euphoric."

And that means investors should just sit back and let earnings do their work.