Tesla Inc. (NASDAQ: TSLA) and Palantir Technologies Inc. (NASDAQ: PLTR) fell on Wednesday, underperforming the broader technology sector even as July inflation data eased concerns about imminent interest rate hikes. The Consumer Price Index rose 0.1% in July, bringing annual inflation to 3.4% from 3.5% in June. Core CPI increased by 0.2%, placing the annual core rate at 2.5%, its lowest level since March 2021.
Despite the macroeconomic relief, Tesla slipped approximately 2% and Palantir dropped around 1.3%. In contrast, the S&P 500 tested record levels at the open, and the Nasdaq Composite gained 0.6%.
Fed Hike Probabilities Decline
The inflation report did not represent a downside surprise but significantly reduced market expectations for further monetary tightening. According to CME FedWatch, the odds of a September rate hike fell to roughly 38%, down from 48.4% on Tuesday. Prediction markets reflected a similar shift; on Polymarket, the probability of a quarter-point hike in September declined to 33% after trading in the mid-40s earlier in the week, while the odds of the Federal Reserve holding rates steady climbed toward 67%.
Sector Rotation Impacts Software Stocks
Palantir’s decline appears driven less by inflation dynamics and more by a sector-specific rotation within the technology space. Software stocks broadly lagged as investors shifted capital toward artificial intelligence hardware. Microsoft Corp. (NASDAQ: MSFT) fell about 2%, while Salesforce Inc. (NYSE: CRM), ServiceNow Inc. (NYSE: NOW), and Workday Inc. (NASDAQ: WDAY) also traded lower.
Conversely, AI infrastructure names surged following earnings reports. Nebius Group N.V. (NASDAQ: NBIS) jumped nearly 30%, CoreWeave Inc. (NASDAQ: CRWV) gained around 19%, and Super Micro Computer Inc. (NASDAQ: SMCI) climbed roughly 18%. This divergence suggests Palantir is being pulled by two competing forces: a friendlier interest rate backdrop and an unfavorable rotation out of software into hardware.
Tesla Fails to Benefit from Macro Relief
Tesla entered the session threatening to end a four-session winning streak. No fresh negative headlines explained the decline, indicating the stock is failing to benefit from macro developments that typically support rate-sensitive growth names. Jai Kedia, an economist at the Cato Institute, noted that singular inflation reports are unlikely to produce meaningful changes in such stocks without a "serious shock" in the data.
Core PCE Estimates Remain Elevated
While CPI data was benign, some analysts warn that other inflation metrics may tell a different story. Peter Schiff pointed to a sharp rebound in oil and gasoline prices later in July as a potential headwind. Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, estimated that July core Personal Consumption Expenditures (PCE) tracked at 0.27% month over month. He noted that Thursday’s Producer Price Index report could materially shift these figures before the official PCE data lands on August 26.
What the Numbers Show
The divergence between Tesla’s performance and the broader market reaction to CPI highlights a decoupling of mega-cap tech valuations from traditional macroeconomic drivers. While the Nasdaq gained 0.6% on lower rate-hike odds, Tesla’s 2% decline suggests investor sentiment is driven more by company-specific factors or sector rotation than by immediate interest rate expectations.
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