Stocks climbed Thursday after new labor market data boosted investors' confidence in the U.S. economy following a sharp market sell-off earlier in the week.

The S&P 500 advanced 2.3%, closing at 5,319.31 and posting its best day since November 2022. The Dow Jones Industrial Average surged 683.04 points, or 1.76%, to 39,446.49. The Nasdaq Composite added 2.87%, ending at 16,660.02.

Pharmaceutical giant Eli Lilly surged 9.5% after posting better-than-expected earnings and raising its full-year outlook on strong demand for diabetes treatment Mounjaro and obesity drug Zepbound. The momentum names which suffered the most Monday bounced back Thursday. Chipmakers Nvidia and Broadcom both jumped by more than 6%. Meta Platforms climbed 4.2%, and Apple ticked up about 1.7%.

The latest weekly jobless claims came in below forecasts, helping to allay some recent concerns on the strength of the labor market. First-time filings for jobless benefits came in at 233,000 last week, down 17,000 from the previous week and lower than the Dow Jones estimate for 240,000, the Labor Department reported Thursday.

The 10-year Treasury yield hit 4% following the jobless claims data, a level seen before the disappointing July jobs report Friday sent markets reeling.

Also aiding markets Thursday was a weaker Japanese yen versus the U.S. dollar. A yen surge that caused the unwinding of a popular so-called carry trade with hedge funds was a main culprit cited for Monday's stock drop.

"This is the bounce people were waiting for. So now what we've learned is we're not going to bounce just for bouncing's sake. We need good news in order to move forward and in order to prove that the rally is durable," SoFi head of investment strategy Liz Young Thomas told CNBC's "Closing Bell" on Thursday.

On the rally following the fresh jobless claims numbers, Young said that indicates the market is "even more sensitive to all of the data that's coming in, which also tells me that we're going to see more volatility as we get data that might conflict."

The major averages are still lower week to date but have recovered much of their losses from Monday's rout. The S&P 500 is down 0.5% for the week, while the Dow and Nasdaq are lower by around 0.7% each.