The report will offer "one more nice data point as to how healthy the economy really is and where it might be going," said JJ Kinahan, chief strategist at TD Ameritrade.
(Read more: Black Friday forecast: Storm to boost sales)
Tuesday will also likely bring reduced trading volume, especially in the afternoon, as traders depart for the Thanksgiving holiday, which will have the market closed on Thursday and wrapping up early the next day.
"A lot of traders are in a bit of a tough spot; people don't like to short the market ahead of the holidays," said Kinahan, who noted security plays Monday afternoon, such as the 4.3 percent rise in the CBOE Volatility Index, or VIX, a measure of investor uncertainty. "Maybe it's because people are heading out and want some protection."
The Dow and S&P 500 rose to intraday records Monday, and the S&P 500 surpassed 4,000 for the first time since September 2000. But the positive momentum lost steam as the day wore on, with stocks finishing little changed. The Dow managing to rise to another record finish.
"Equities are likely to trade sideways with an upward bias into the new year. We do see modest economic growth to fuel earnings in the new year," said Sandven. Still, "a pullback is warranted," he said, pointing out that the S&P 500 is up 26 percent on the year.
(Read more: Dow is way overvalued: Time to question this rally)
A handful of companies report earnings Tuesady. Eaton Vance, Hormel Foods, Pall Corp., Tiffany, Barnes & Noble and Chico's FAS are among the companies that will report before the bell, while Analog Devices, Hewlett-Packard and TiVo report after the close.
Beyond housing starts, economic data to be released Tuesday morning include building permits, the Case-Shiller and FHFA home price indexes, and consumer confidence for November at 10 a.m.
—By CNBC's Kate Gibson