Odds Of a Fed Rate Hike Climbed After Hotter-Than-Expected Core Inflation. Stocks Climbed Anyway.

Stocks rose on Friday, breaking a four-day losing streak even as bets of a rate hike by the Federal Reserve jumped after core inflation rose more than expected in July.

The S&P 500 gained 0.86%, while the Dow Jones Industrial Average did so 0.98%. The tech-heavy Nasdaq Composite gained 0.96%.

Chances of a rate hike in next week's Fed meeting are all but certain now, with the CME Group's FedWatch tool showing they now stand at 86.3% compared to Thursday's 72.4%.

Core inflation climbed more than expected in August, rising 0.3%. The figure was 0.1 percentage points more elevated than forecasts. The annual rate clocked in at 2.4%, as the Dow Jones consensus expected.

The Bureau of Labor Statistics showed that the headline figure climbed 0.4% last month, in line with expectations. The year-on-year figure stood at 3.4%, also in line with expectations.

"Indexes that increased over the month include communication, lodging away from home, airline fares, education, and used cars and trucks. Conversely, the index for medical care and the index for motor vehicle insurance were among the major indexes that decreased in August," BLS added. The report is the latest the Fed will see before announcing its policy decision next week.

At the same time, consumer sentiment continued dropping sharply in September, falling 7.5% month-over-month as inflation fears take hold.

The survey's director, Joanne Hsu, said "Democrats and Republicans alike posted sizable declines, while independents were little changed from August."

She went on to detail that year-ahead expectations for "both personal finances and business conditions plunged" as they anticipate "greater pressures on their pocketbooks to come" as a result of a "resurgence in fuel prices and trade tensions."

"Overall, sentiment is now 16% below February, prior to the start of the Iran conflict, and 13% lower than a year ago," Hsu added.

At the geopolitical level, Saudi Arabia said it shut down its East-West Pipeline as precaution after sustaining multiple attacks.

Citing an official source at the Ministry of Energy, the country said that the attacks "resulted in a number of injuries, and medical care was provided to those affected."

"The source said emergency and specialised technical teams responded immediately following the attacks, taking the necessary measures to secure the pipeline and assess its safety in line with approved safety procedures and emergency response plans, in coordination with the relevant authorities," the document added.

The development marks another major threat to Riyadh's oil exports, as Iran is preventing most ships from transiting through the Strait of Hormuz, and the Houthis have declared an embargo of Saudi oil in the Red Sea, targeting its ships in the waterway and striking energy infrastructure.

The Houthis also reached the island of Perim in the Bab el-Mandeb Strait, a breakthrough that could help the group tighten its grip on the key shipping lane.