Here is Schwab's early look at the markets for Friday, December 20:

Earlier this week, the Federal Reserve put investors on inflation watch and helped send markets reeling with its cautious rate outlook. Today, investors brace for November Personal Consumption Expenditures (PCE) prices, the inflation data most closely tracked by the Fed. This pivotal report follows a disappointing session where an early recovery attempt ran into more selling, reinforcing ideas that a quick comeback might be unlikely as Wall Street struggles with nearly seven-month high Treasury yields.

Consensus is for headline PCE to rise 0.2% monthly, the same as in October. Core PCE, which strips out volatile food and energy prices, is also seen up 0.2%, down from 0.3% the prior month. The market could be more sensitive to any divergence from these levels after the Fed cited inflation as one reason it expects just two rate cuts next year instead of four as it previously forecast.

Another set of data at the same time as the 8:30 a.m. ET. PCE is personal spending and personal income for November, seen up 0.5% and 0.4%, respectively, month over month. Such numbers could reinforce ideas that strong personal consumption is fueling economic growth following a rise in third quarter gross domestic product to 3.1% from the previous 2.8%.

Beyond data, investors parsed earnings from two companies that often reflect consumer and business demand as Nike (NKE) and FedEx (FDX) reported late Thursday. Nike has had a challenging year that included a CEO retirement amid heavy competition and falling North American and China sales. Nike shares popped in pre-market trading after the company beat analysts' consensus on earnings and revenue despite more weakness in the North American market.  FedEx also climbed in pre-market action despite a guidance reduction. The company beat earnings expectations, and investors seemed cheered by news of plans to spin off its freight division in a streamlining move.

Those two earnings came ahead of today's final December consumer sentiment reading from the University of Michigan, with a consensus headline of 74.2 expected. That would be up just a touch from the preliminary reading and precedes Monday's December consumer confidence report. Investors might want to monitor both for inflation expectations after the Fed's cautious rate outlook. The preliminary December sentiment report featured a sharp rise to 2.9% for the one-year inflation outlook, and the Fed closely watches consumer sentiment around prices.

Reverberations from Wednesday's Fed meeting and the sell-off that followed aren't likely to dissipate quickly, especially as the market steels itself for what now looks like less of a "Goldilocks" 2025 than perhaps some had expected.

"We still expect the Fed to cut rates a few more times, but sticky inflation should slow down the pace and magnitude of cuts," said Collin Martin, director, fixed income strategy, at the Schwab Center for Financial Research. "A pause at the January meeting seems pretty likely now. Treasury yields should stay above 4% unless the inflation or labor market shifts considerably. While we don’t expect Treasury yields to move much higher, the risk is still to the upside given the potential for inflation to remain elevated if the proposed economic policies come to fruition."

Treasuries remained under pressure yesterday with the 10-year note yield approaching highs near 4.6% last seen in May. The stubborn persistence of selling in Treasuries might have been a factor in major indexes' failure to hang on to an early rally attempt following Wednesday's 3% losses. The exception was the Dow Jones Industrial Average ($DJI), which by the skin of its teeth managed a green close for the first time in 11 sessions, breaking the longest losing streak since 1974.

Rate-sensitive sectors like real estate and energy suffered most yesterday, but utilities and financials made a positive stand while the tech sector also posted slight gains despite sharp losses from semiconductor firm Micron after a soft earnings outlook. Most of the mega caps finished green Thursday, but that wasn't enough to keep the SPX in positive territory. Market breadth, which was relatively healthy late last month, has weakened considerably to a point where fewer than one in five SPX stocks traded above their 50-day moving averages late this week.

Eyes could turn to Washington, D.C., today, as Congress grapples with plans to keep the government open. Shutdowns don't tend to hurt the market much unless they're prolonged, but companies like health care insurers and defense contractors that rely more on government funding might feel the impact if Congress can't make a deal.

The SPX slipped 5.08 points (-0.09%) Thursday to 5,867.08; the Dow Jones Industrial Average® ($DJI) gained 15.37 points (0.04%) to 42,342.24; and the Nasdaq Composite® ($COMP) fell 19.92 points (-0.10%) to 19,372.77.