The stock market has enjoyed a strong run this year, and investors are wondering whether the rally will continue despite elevated bond yields and another likely interest rate hike by the Federal Reserve this year. Note that the Fed has already hiked key rates by 25 bps in mid-September.

Here are some reasons that show the rally may have further room to run.

1. Strong Earnings Are Keeping Investors Bullish

Corporate earnings remain one of the biggest reasons stocks have held up so well. S&P 500 earnings jumped 52% year over year in the second quarter, giving investors a solid reason to remain optimistic despite higher interest rates.

Jeff Schulze, head of economic and market strategy at ClearBridge Investments, told Yahoo Finance that markets have been taking their cues from the strong earnings environment.

Investors should note that S&P 500 earnings growth has been strong over the past two years, but the current momentum stands out. Growth is accelerating and becoming increasingly broad-based across sectors, creating a supportive backdrop for stocks.

S&P 500 earnings are expected to grow 23.9% year over year in Q3, the eighth consecutive period of double-digit gains. Earnings revisions have remained positive, extending the trend in place for nearly a year. 14 of the 16 Zacks sectors are on track to see earnings growth in Q3, reflecting broad-based positivity.

2. History Favors a Strong Finish

The market's performance through August also offers a reason for optimism.

According to Schulze and his team, the S&P 500 has gained more than 10% through August on 28 occasions. In 25 of those years, the index advanced between September and December. That's an 89% success rate, as quoted in the same Yahoo Finance article.

Yes, the index has pulled back from its mid-August peak, but remains close to its record high. This suggests that investors have not abandoned stocks, even as the 10-year Treasury yields have been elevated.

3. Rising Yields May Signal a Stronger Economy

Higher bond yields are not always bad news for stocks. What matters is why yields are rising.

Schulze pointed out that much of the recent increase in the 10-year Treasury yield has come from higher real rates, or inflation-adjusted interest rates. Since late February, real rates have risen by 50 basis points compared with a 15-basis-point increase in inflation expectations and a 17-basis-point rise in the term premium, cited by a Yahoo Finance article published in mid-September.

This suggests that investors are responding more to stronger economic growth, increased AI infrastructure spending and changing expectations for Fed policy than to fears of a major inflation or fiscal crisis.

Moreover, per Truflation, U.S. inflation stood at 2.26% (at the time of writing), less than the August consumer price index of 3.4%. Truflation is an independent, real-time inflation index that tracks changes in consumer prices using millions of data points.

If this wasn’t enough, the August personal consumption expenditures price index (PCE), the Fed’s preferred inflation gauge, witnessed a rise of 3.4% on headline and 3% for core, both well below estimates, per CNBC.

4. Q4 Is Upbeat for U.S. Stocks?

The late October-December period embraces the key holiday season, which puts the spotlight on the performance of retailers. As loads of sales-boosting events — Halloween, Thanksgiving, Cyber Monday, Black Friday and Christmas — fall in this quartile, the sector generally sees a sales boost.

Sentiment normally remains strong in Q4, which is traditionally the strongest period for U.S. equities, averaging a 4.9% gain compared to a 3% average across all other quarters, per FactSet data, cited by Seeking Alpha.

Holiday retail sales are projected to grow this holiday season and surpass $1 trillion for the first time, though that growth is boosted by inflation, per Bain & Company. Sales are likely to grow by 4.5% this year.

The holiday spending is supported by higher tax refunds, which are up $43 billion this year, or 17% year over year, as mentioned on CNBC, despite the fact that most of the tax refunds were spent at gas stations.

5. Relief Rally Expected Post Midterm Election?

Since 1974, the S&P 500 has delivered an average return of just 1.7% from Aug. 1 through Election Day, per Charles Schwab. But markets normally see a "relief rally" in the months after an election. Since 1974, the S&P 500 has averaged a 5.7% return in the three months immediately following a midterm election, with 11 of the 13 years producing a positive return. 

And in the six months following a midterm election, the S&P 500 has averaged a 12.4% return across the same years, with all 13 years showing positive returns, per Charles Schwab. All these historical data points indicate a potential rally in ETFs like Vanguard 500 Index Fund ETF Shares (VOO Quick QuoteVOO - Free Report) and Invesco S&P 500 Equal Weight ETF (RSP Quick QuoteRSP - Free Report) (read: Midterm Takes Center Stage: What Does It Mean for Markets & ETFs?).

6. AI-Driven Activities to Rule Ahead

Global data center capital expenditure is projected to top $3 trillion by 2030, due to investments in artificial intelligence infrastructure, according to a Dell'Oro Group report, as mentioned in an Economic Times report. This surge is expected to pull off the broader stock market and ETFs in the coming days. So, keep a close eye on the tech-heavy ETF Invesco QQQ (QQQ Quick QuoteQQQ - Free Report) .