All eyes on Wall Street will watch inflation data Tuesday, while earnings season continues to build up steam.
The September Consumer Price Index is scheduled for release before the open, as are third-quarter earnings from Goldman Sachs (GS), UnitedHealth (UNH) and other large-cap companies. Traders are watching the data for indications on whether inflation is running hot enough to support a U.S. Federal Reserve rate hike as soon as later this year, while the quarter's corporate earnings are expected to mark the turning point toward a return to earnings growth.
"CPI is going to be in focus because of the comments from [Fed Vice Chair Stanley] Fischer on low interest rates," said Robert Pavlik, chief market strategist at Boston Private Wealth.
Fischer said Monday that the central bank is "very close" to its targets of full U.S. employment and 2 percent inflation. He also laid out concerns of low interest rates, including potentially making the economy more vulnerable to recession-causing shocks.
"The Fed clearly wants more growth than inflation," said Robert Tipp, managing director, chief investment strategist and head of global bonds at Prudential Fixed Income. "The markets also are not sure what to make of the inflation numbers."
He pointed out that the core inflation numbers are already above 2 percent and the PCE deflator is approaching 2 percent, but "the Fed doesn't seem … concerned about that."
The PCE deflator is the Fed's preferred inflation gauge and has shown inflation running at about 1.7 percent .
Core CPI is already showing inflation above the Fed's target. September core CPI, ex food and energy, is forecast to rise 2.3 percent from the same period last year, the same as in August.
"If we had stronger growth to accommodate higher inflation, I'd be more excited about what it means for risk assets," said Joseph Lavorgna, chief U.S. economist at Deutsche Bank Securities. His concern is that headline inflation is rising on the back of the rebound in oil prices from very low levels.
"Inflation's bottomed, but without a more robust economy, higher inflation is going to eat into wage growth, which means real wages are going to be shrinking," he said.
Headline CPI is expected to show a 0.3 percent rise for September and a 1.5 percent increase from the same month last year, according to a consensus estimate of economists polled by Reuters. CPI rose 1.1 percent in August year over year.
Treasury yields held lower after Fischer's comments, with the two-year U.S. Treasury yield (U.S.:US2Y) touching its lowest since October 5. The 10-year Treasury yield (U.S.:US10Y) was also lower after touching a fresh four-month high overnight.
"I think people are overreacting to the whole thing. The Fed will be tolerant of an uptick in core CPI, core PCE that aren't even that high," said Ilya Feygin, managing director and senior strategist at WallachBeth Capital.
U.S. stocks closed slightly lower Monday in low volume trade, under some pressure from softer data, a pullback in oil prices and continued discussion of a potential December rate hike. The S&P 500 (^GSPC) closed 6.48 points lower at 2,126.50 with consumer discretionary and energy the two worst performers, while utilities led four advancers.
U.S. crude oil futures (New York Mercantile Exchange: @CL.1) settled 41 cents lower at $49.94 a barrel, weighed by continued concerns of oversupply.
Since 2010, when core CPI has topped estimates by any margin, two weeks later the S&P 500 has returned 1.33 percent, according to historical analysis using Kensho. The S&P traded positive 71 percent of the time.
The energy sector is up 81 percent of the time with an average 1.33 percent return, while materials had an average return of 1.74 percent with positive trades 76 percent of the time, according to Kensho.
CPI is "an important secondary data point but I don't think any decisions are being made on it," said JJ Kinahan, chief strategist at TD Ameritrade. He's watching earnings and the VIX, for how traders position on volatility heading into the election.
The NAHB Housing Market Index for October is scheduled for release later in the morning.
BlackRock, Johnson & Johnson, Comerica, Domino's Pizza, Harley-Davidson and Philip Morris are also scheduled to release quarterly earnings ahead of the open Tuesday. Intel, Yahoo, Intuitive Surgical and Navient are due to report earnings after the close.
Disclosure: CNBC's parent NBCUniversal is a minority shareholder in Kensho.
— CNBC's George Manessis contributed to this report.