Here's why stocks are soaring and the surprise autumn rally has room to run

The S&P 500 hit another record high Thursday, putting the benchmark on pace for a year-to-date gain of more than 20%, as investors continue to bet on the strength of the U.S. economy and the impact of interest-rate cuts and stimulus from major central banks worldwide.

A resilient domestic economy — which grew 3% over three months ended in June and is advancing at a 2.9% pace over the current quarter — coupled with a newly dovish Federal Reserve and a surprisingly solid labor market have established the underpinnings of the U.S investment case.

Tech stocks, too, are extending their early spring rally. That market move had faded somewhat over the summer after a robust near-term sales forecast from chipmaker Micron Technology ( MU ) had added support for the broader AI-investment narrative.

The S&P 500, which has a long track record of September declines going all the way back to 1950, is on pace for a 1.3% gain, a move that would take its quarterly advance to just under 5%.

"Stocks continue to knock out record high after record high," said Bret Kenwell, U.S. investment analyst at eToro. "While we can see some volatility over the next few months, the environment remains constructive as long as earnings growth remains strong and the economy continues to chug along."

"The labor market still remains a top risk for investors, as weakness would weigh on consumers’ ability to spend and ultimately hurt US GDP and the economy," he added. "For now, though, consumers continue to defy their critics, which should be viewed as a good thing for the Fed, the economy and the stock market."

China stimulus gives equities a boost

That case was enhanced this week by a series of developments in China, the world's second-largest economy and key trading rival, where officials unveiled the most comprehensive stimulus package in more than a decade.

A readout from the ruling Communist Party's annual meeting also indicated a vow to spend whatever is necessary to meet its annual 5% GDP growth target.

The pledge is likely to focus on China's export sector, its key growth driver, and stoke a longer-term acceleration in manufacturing output and international trade, both of which are likely to have disinflationary impacts on goods prices around the world.

Related: Goldman Sachs reviews stock targets after Fed interest rate cut

That downward pressure is also being buttressed by rate-cut signals from central banks in Europe, Great Britain and Canada. Also a factor: a surprise policy pause from Japan, which earlier had signaled willingness to raise interest rates to support its struggling yen and boost inflation prospects in its aging economy.

In the U.S., the Federal Reserve's recent outsized half-percentage-point rate cut, which pared the Federal Funds Rate to 4.875%, is likely to be followed by more reductions into year-end and beyond. CME Group's FedWatch tool pegs the benchmark rate at around 3% or even lower this time next year.

Corporate-earnings growth accelerates

Corporate earnings, meanwhile, continue to accelerate into the start of the third-quarter earnings season, with collective S&P 500 profits forecast to rise 5.4% from a year earlier to $511.2 billion.

Full-year forecasts, according to LSEG data, peg 2024 earnings growth at 9.9%, more than double last year's tally, and see 2025 earnings rising 15.2%.

"Based on historical performance for the S&P 500, strong performance and momentum in the first nine months of the year could signal more gains ahead," said Adam Turnquist, chief technical strategist for LPL Financial.

"Over the last 75 years, the final three months of the year have resulted in negative returns only eight times when momentum was strong during the first three quarters," he added. The strategist noted that the largest of the four was tied to the "Black Monday" crash of October 1987.

Related: Stocks set for big Fed boost after summer rate cut rethink

Another factor driving markets higher this week, and likely to provide a notable tailwind for consumer spending into the final months of the year, is the sharp pullback in global crude oil prices.

The OPEC cartel, led by Saudi Arabia and nonmember allies such as Russia, has been attempting to prop up prices by cutting output for much of the past five years.

$3-a-gallon gasoline on the way?

That effort, as well as a renewed focus on domestic energy production in the U.S., has led to big declines in market share and has prompted, according to a report from London's Financial Times, a move by Riyadh to abandon its longer-term target of $100-a-barrel oil.

WTI crude futures for November delivery, which are tightly linked to U.S. gasoline prices, fell nearly $3 a barrel Thursday to trade at just under $67. Such a move would likely bring the average price per gallon of gas below $3 over the coming weeks.

That could prove crucial for overall spending sentiment, particularly in the wake of the biggest monthly slump in the Conference Board's reading of consumer confidence in more than three years earlier this week.

Related: Gas prices are plunging and it's bigger news than you think

"Consumers are clearly concerned about the implications of the upcoming election, the increasing conflict around the world, and the stubbornly high cost of food and credit," said Jamie Cox, managing partner for Harris Financial Group in Richmond.

Gas-price relief can mitigate that, but at the end of the day conditions in the labor market are likely to prove key to the market's surprising autumn rally.

More Economic Analysis:

• Stocks set for big Fed boost after summer rate cut rethink
• Fed delivers on big rate cut, signals focus on cooling job market
• The Fed Dot Plot is more important than a rate cut

Recent jobless claims data have been solid, with the number of Americans filing for first-time unemployment benefits falling to a fewer-than-expected 218,000 last week, the lowest since mid-May.

The broader four-week average was also in decline, falling to 224,750, and recent figures from WARN notices and Challenger Gray point to a steady trend in corporate layoffs.

"If there’s a problem in the labor market, it’s not showing up in the weekly jobless claims data," said Chris Larkin, managing director for trading and investing at E-Trade From Morgan Stanley.

"As is always the case, though, the monthly jobs report will play a bigger role in defining market sentiment," he added. "But until there’s evidence to the contrary, numbers like this will likely keep soft-landing hopes alive and well."

Related: Veteran fund manager sees world of pain coming for stocks