Tech stocks led a market rally on Thursday as investors analyzed labor market data for clues on the future trajectory of interest rates. The major averages saw gains, with the S&P 500 surging by 0.8% and the Nasdaq Composite rebounding by nearly 1.4%. However, the Dow Jones Industrial Average lagged behind, rising only 0.2%.

The positive sentiment in the market was driven by signs that the labor market is returning to normal, reinforcing the effectiveness of the Federal Reserve's anti-inflation interest rate hikes. Traders are now betting on a Fed policy shift towards rate cuts, as a soft economic landing appears increasingly probable.

Leading the pack, Alphabet shares (GOOGL) soared over 5% after the company announced new artificial intelligence (AI) initiatives. This contributed significantly to the tech stock rally.

The latest weekly jobless claims data, released on Thursday, indicated that 220,000 claims were filed in the week ending December 2. This figure met expectations and only saw a marginal increase of 2,000 from the previous week, suggesting limited layoffs.

However, all eyes are now focused on the monthly US jobs report, set to be released on Friday, as it will play a crucial role in determining inflation and interest rate expectations ahead of the Federal Reserve's final meeting of the year next week.

The November jobs report, scheduled for release at 8:30 a.m. ET, is expected to reveal a rise of 185,000 nonfarm payrolls. Consensus estimates compiled by Bloomberg also predict that the unemployment rate will remain unchanged at 3.9%.

In other news, AMD (AMD) stole the spotlight as its shares surged by almost 10% following the launch of its most advanced chip aimed at generative AI. The company's CEO, Lisa Su, expressed optimism about future market share growth, emphasizing the significant growth opportunity within the AI market.

Meanwhile, shares of C3.ai (AI) plummeted by over 10% after the AI darling reported earnings that fell short of Wall Street's estimates. The company projected their current quarter revenue to range between $74 million and $78 million, disappointing analysts who had been hoping for $77.7 million in revenue.

Looking ahead, Tom Lee, Head of Research at Fundstrat, expressed bullish sentiments for the S&P 500. Lee forecasts that the benchmark index will surge by more than 13% by the end of next year, reaching 5,200. This prediction surpasses the calls of other strategists, such as Deutsche Bank and BMO Capital Markets, who expect the S&P to reach 5,100.

Lee's previous prediction for this year, with a target of 4,750 for the S&P, was deemed higher than consensus. However, his expectations were largely based on anticipated declines in inflation and a resilient US economy that avoids recession. With the current market welcoming low inflation readings and signs of ongoing economic growth, Lee foresees a similar narrative playing out in 2024.

During a 2024 outlook roundtable on Thursday, Lee remarked, "In 2024, I think that this is actually still a residual game plan... the technicians will get the year right and the economists are gonna get the year wrong."

As traders anxiously await the labor market data and the Fed's upcoming meeting, the tech sector's strength during Thursday's rally provides a glimmer of optimism for investors.