What happened

Palanitr Technologies (PLTR -2.13%) stock made explosive gains in today's trading. The data analytics specialist's share price gained ground in conjunction with momentum for the broader market and closed out the daily session up roughly 9.3%. Meanwhile, the S&P 500 index, Nasdaq Composite, and Dow Jones Industrial Average ended the day's session up approximately 5.5%, 7.4%, and 3.7%, respectively. 

The Labor Department released a new consumer price index (CPI) report Thursday that showed October inflation coming in below expectations. While economists had expected the CPI to increase 0.6% on a sequential basis and 7.9%, it actually increased 0.4% sequentially and 7.7% compared to October 2021, and the data prompted hopes that the Federal Reserve will now shift away from instituting more large interest rate hikes.

Money, a gold bar, and chart lines.

Image source: Getty Images.

So what

October's CPI data still showed inflation that looks quite high on a historical basis, but the market's reaction today indicates investors are optimistic that the inflationary trend has reached a peak and is now on track to moderate substantially. The Fed has been trying to fight inflation with interest rate hikes, and the rising-rate environment has crushed valuations across the stock market this year.

Growth-dependent technology companies have been particularly hard hit amid the macroeconomic conditions because they often rely on debt or new stock offerings that dilute shareholders in order to fund their operations, and Palantir stock is trading down roughly 58% year to date even after today's big gains. If the Fed takes a more dovish approach to interest rates in response to signs inflation is slowing, the data analytics company's stock could see a more substantial valuation recovery.  

Now what

The new CPI data has helped Palantir stock regain ground following a sell-off spurred by third-quarter earnings that arrived with weaker-than-expected profits. The company posted an adjusted profit of $0.01 per share on revenue of $478 million last quarter, while the average analyst estimate had called for per-share earnings of $0.02 on sales of $470 million. While Palantir has shifted into profitability on a non-GAAP (adjusted) basis, those calculations rely on eschewing stock-based compensation, and it remains a risky growth-dependent tech stock in a volatile market.

If inflationary pressures cool and the Fed holds off on more big rate hikes, Palantir stock could have plenty of room for upside in the near term, but investors shouldn't treat that outcome as a given just yet.