"They saw all the good in what Trump could do in the first six weeks after the election and then lately, it's gotten to be: 'OK, what are we waiting for? What do you mean he's going to put up tariffs? What do you mean we're not going to get tax reform by Feb. 1?'" said John Canally, economist and market strategist at LPL Financial.
Stocks sank and Treasury yields moved lower Tuesday. The Dow lost 58 to 19,826, and the S&P 500 fell 6 to 2,267. Financial stocks were leading the decline, down 2.3 percent, with the drop in yields.
"You buy the rumor, sell the fact on the 10-year. People expected everything to pass as soon as Republicans took control of Congress January 4," said Canally. "I think people are getting cranky. That 10-year could come down more."
Canally said of the data Wednesday, the CPI will get the most attention. "A lot of people are going to stand up and take pause," he said. A move higher in energy prices is expected to be what's moving the headline number, and that bump could be temporary.
"There's no question but the inflation numbers are very important because you're seeing a global rise," said Peter Boockvar, chief market analyst at the Lindsey Group. "You saw UK CPI coming in higher than expected. This is a global phenomenon of rising inflation. It does hamstring central banks." Wages in the U.S. have also been on the rise, with pay increases in December at the best pace since 2009.
Michelle Girard, NatWest Markets chief U.S. economist, said she expects two rate hikes but certainly the Fed could do more if inflation picks up. "The bottom line is you have inflation more likely to firm than fall and you've got the unemployment rate now below the gauge of the Fed's full employment. You're looking at the prospect of more fiscal stimulus. You can understand why Fed officials themselves are becoming less comfortable in their extremely accommodative stance. It's getting harder to justify being this far below the neutral rate," she said.
Trump's comments on the dollar being too strong hit the greenback Tuesday. It was also lower as the pound surged on comments from British Prime Minister Theresa May about the U.K. plans to leave the European Union.
The comments were seen as unusual since recent presidents have stayed away from currency comments and it has been the Treasury secretary who speaks for the dollar. The comment also was a surprise in that the U.S., back into the 1990s, has talked up a strong dollar policy. The dollar has been rising on the idea that Trump's tax breaks and fiscal spending plans will boost U.S. growth.
"His trade policy, which is about bringing jobs back to the U.S., by definition requires a weak dollar. There lies the biggest contradiction of this entire policy strategy. Do you want a weak dollar or do you want a strong dollar?" said David Woo, head of global rates and foreign exchange research at Bank of America Merrill Lynch.
Woo said he expects Trump to comment on the dollar in the future, and his administration may do so more if it strengthens.
"I'm encouraging everybody who takes trading currency seriously to get themselves a Twitter account," Woo said.
Besides CPI at 8:30 a.m., there is industrial production at 9:15 a.m. The NAHB survey of homebuilder sentiment is at 10 a.m. and the Fed's Beige Book is expected at 2 p.m. There is Treasury international capital flow data at 4 p.m.
Fed Chair Janet Yellen speaks to the Commonwealth Club of San Francisco at 3 p.m. ET and that will be watched closely after some of the more dovish Fed speakers — New York Fed President William Dudley and Fed Gov. Lael Brainard both sounded more hawkish than usual in comments Tuesday.
Canally said the market should start focusing more on earnings season, as more reports are released. So far several major banks have reported, and Citigroup, Goldman Sachs, US Bancorp, Northern Trust and Charles Schwab all report Wednesday. Netflix and Canadian Pacific also report Wednesday.
"A tweet that goes the wrong way, or an earnings call that goes the wrong way, they both will have the same impact here," said Canally. He said ultimately earnings comments could have more clout if they say something fundamental about the outlook for profits this year. "The banks and financials had the biggest chance to surprise and so far they have," he said, adding energy could be another group with upside surprises.
Over the long holiday weekend, Trump's comments in interviews and on Twitter signaled markets that the much-anticipated corporate tax break could take longer than they expected. That's because Trump said he did not agree with the "border-adjustment tax," a key congressional proposal that would have paid for a big chunk of the tax break for corporations. The border tax would tax imports but not exported goods.
Trump also said he had a plan to replace Obamacare over the weekend, and that fueled speculation that the new administration could get bogged down early in dealing with health care law and not the tax cuts and fiscal stimulus that had been driving stocks higher.
"People are just a little more skeptical," said Canally. "It's been a month since the postelection trades started to unwind."
Boockvar said the bar is getting raised as Trump's inauguration Friday gets closer. "The reality is that Trump is where people are now going to start deepening their analysis, and they're realizing there's no free tax cuts. This now impacts what he can potentially do."
Boockvar said Trump's comments on tariffs was a concern to markets.
"This stuff may not lead to actual tariffs, but just verbalizing it, you could freeze decisionmaking. It may not be an actual tariff, but if it starts influencing business decision, it may work to a similar extent. The reality is people were looking at this with rose-colored glasses," said Boockvar.