Treasurys, which rallied with stocks last week, retreated Tuesday as safety buying slowed down, and the Treasury saw the weakest demand at a 10-year auction in seven years. Yields move inversely to price, so a selloff in bonds sends yields higher. The 10-year was yielding 1.51 percent late Tuesday, up from 1.43 percent late Monday. The 10-year was last at 1.50 percent on June 30, but had fallen to as low as 1.32 percent in a global buying spree last week. It was back under 1.50 percent Wednesday morning.
U.S. Treasury yields moved lower in a frenzy last week as investors feared the uncertainty around the U.K.'s breakup with Europe, and as super-low and negative yields in other parts of the world made U.S. Treasury yields look attractive. As bond yields dipped, U.S. stocks attracted investors looking for yield.
"It was pretty clear that there was going to be this increased demand for stocks because of what was going on in the bond market, but that kind of has gone away for now," Steve Massocca of Wedbush Securities said.
"The reason for the rally has disappeared but we did break out to new highs, so I think we back off here. We're pretty extended on a short-term basis...I think the market will be down tomorrow [Wednesday], and it'll be interesting to see if the S&P can get back below the June peak which was 2120."
Scott Redler, partner with T3Live.com, said it would be a positive if the market would take a break after its rapid run. "You're seeing a lot of bullish action but you just had a 75-point rally in five days," in the S&P 500, he said.
"A breather would be nice, but unfortunately this is an all or nothing market so breathers don't happen when you want them," Redler added. "The measured move off this breakout is 2,230."
But he said the market was showing signs of being oversold short term, and it is difficult to add longs at the current level.
"Buying on day five is never an easy task but the rotation has been health," Redler said. "Oil, which lagged for the past five sessions. played catch-up. The banks had a little outperformance. If the money keeps rotating among the sectors, the pull-ins are going to be shallow and traders are going to have to be more involved."
Amazon.com, which fell 0.7 percent Tuesday, might be sending a short term signal, Redler noted.
"The market could take some clues from the strongest stock in tech selling down on its Prime Day. Amazon has been the strongest of the high beta FANG names this year and it ran before the market did last week, and today it moved lower and sold on the news. That could give some clues about tech. The market could use a few days off," he said.
FANG were last year's high fliers, including Google parent Alphabet, Netflix and Facebook. Amazon's Prime day was a one-day sale across its site.
Redler said the action in bonds Tuesday may actually be a positive, as it could indicate investors were selling bonds and moving into stocks.
Art Cashin, director of floor operations at UBS, said, however, that traders were concerned about the quickness with which yields retreated.
"We'll keep watching the yields," said Cashin. "They're moving up a little faster than the market was ready to react to…I'm hearing people are starting to worry about the inflation data at the end of the week."
If inflation were to rise, that could be a signal the market that the Fed needs to get moving on rate hikes, but worries about Brexit and the global economy has lulled the market into very low expectations for Fed rate hikes. CPI is released Friday.
Cashin said that he hadn't heard anything so far from Fed speakers that made him think they were ready to break ranks on the central bank's messaging.
But that's what the markets are waiting for. There are three Fed speakers Wednesday, starting off with Dallas Fed President Rob Kaplan at 9 a.m. EDT, who is due to speak on the world economy. Philadelphia Fed President Patrick Harker speaks at 6 p.m., and Cleveland Fed President Loretta Mester speaks at 10:30 p.m. in Australia on the economic outlook and monetary policy.
Data due on Wednesday include import prices at 8:30 a.m. and the federal budget and Fed Beige book at 2 p.m. Earnings are expected from CSX and Yum Brands after the bell.
"We're going to start seeing earnings and they're not going to be terrific," said Massocca. There are a number of major banks reporting Thursday and Friday, including JPMorgan Chase, Citigroup and Wells Fargo.
There is also the auction of $12 billion in reopened 30-year bonds at 1 p.m. EDT Wednesday, the last of three auctions this week. The weakness at Tuesday's 10-year auction was a surprise, and dealers had to step in and take 38 percent of the sale, the highest portion since January, 2015.
"[Buyers are] shying away. They loved it at 1.35 and hate it at 1.51 (percent)," said Justin Lederer, rate strategist at Cantor Fitzgerald. The bid-to-cover ratio of 2.33 at the auction was the weakest since March 2009.
"Maybe it's just a blip on the radar for the trajectory of going lower, or it's…the U.S. is in better shape than we thought, and even with the grabbing of yield, the U.S. (yields) shouldn't be down at these levels," said Lederer.
Lederer pointed out that June's payroll number was strong, and that the Fed could still raise rates this year. "Things change quickly so I still think September might be a little bit hard pressed, just given the election, but there's no reason to believe they can't raise rates at least once this year," he said.
He said the 30-year auction could be fine, since there was still appetite for duration. The 30-year was yielding 2.23 percent Tuesday, after touching a record low of 2.089 Monday.