This is how the Fed could surprise markets Wednesday

The Fed is not expected to take any action, but it could turn sentiment Wednesday.

Strategists say while the Fed is not expected to raise interest rates, it could talk the talk of a confident-sounding central bank, set on hiking rates three times, as it has forecast for this year. That could be negative for bonds, and interest rates could rise as a result since many expect just two hikes.

Stocks could also see some positive spillover Wednesday from Apple's late Tuesday earnings. Apple jumped more than 3 percent after its report.

"I don't think it's hawkish, I think it's going to be positive. They have to acknowledge the fact that the economy is doing well and better than it was in December. You'll have to see an upgrade of the economy in their statement," said David Woo, Bank of America Merrill Lynch, head of global rates and currencies research.

Jim Caron, fixed income portfolio manager at Morgan Stanley Investment Management, said the risk for markets is the Fed sounds more hawkish in its 2 p.m. ET statement. Caron said he doesn't expect to get much out of the statement, but he's waiting for Fed Chair Janet Yellen's Feb. 15 congressional testimony on the economy. According to Fed funds futures, traders see about a 20 percent chance of a rate hike for March.

"If she's thinking about doing something, she'll probably tip her hand [in February's testimony] and set us up for what she's going to do in the March meeting," he said. "The March meeting is a lot closer than we all probably think … that's particularly something to look at and focus on. CPI has been higher. Inflation seems to be stabilizing and moving higher. Economic activity and growth and a lot of those confidence measures, like consumer confidence, are looking good. Broadly speaking, the data has been good as well."

For that reason, the data is also key on Wednesday. There are monthly auto sales issued by auto manufacturers throughout the morning. ISM manufacturing data is at 10 a.m. ET, and Markit PMI data is at 9:45 a.m. There is also the 8:15 a.m. ET release of ADP payrolls, expected at 164,000.  

Stocks sold off Tuesday after a big decline Monday, but the Nasdaq turned positive. The Nasdaq was lifted by biotech stocks after President Donald Trump met with pharmaceutical company CEOs and promised less regulation and tax reform. The Dow was off 107 points at 19,864 and the S&P 500 was off 2 at 2,278. The Nasdaq rose 1 to 5,614.

Treasury yields continued to trade lower Tuesday, as investors moved into bonds amid concerns the controversy surrounding Trump's immigration actions are slowing his other plans for the economy. There is also concern that he and advisors have made protectionist sounding comments, and that a trade war could be looming. The 10-year yield was at 2.45 percent in late trading.

"People are pessimistic about Trump. That's what this is all about. You have to be willing to look through the noise. There's a lot of noise," said Woo.

The dollar declined Tuesday after Trump trade aide Peter Navarro was reported as saying Germany uses the "undervalued" euro to its advantage. Trump also told drug executives that other countries intentionally devalue their currencies to their advantage. This jawboning of the dollar led to a decline of as much as 1 percent at a low point in the dollar index Tuesday. 

Bob Doll, Nuveen Asset Management chief equities strategist, said the market could change its focus Wednesday from Trump's immigration policy. "He's quickly going to change the subject to the Supreme Court nominee, so I think the noise will move from the immigration thing to the Supreme Court thing. It'll fade when we have something new to talk about," he said. 

Doll said the market has been impatient about tax reform but he expects to see action by the second half of the year.

"Too many people thought we had a Republican president, a Republican House, Republican Senate and they were going to all get along peachy keen … but it's going to be bumpy, because they're not all going to see the ball the same way. I think it's going to be inconsistent, and it will come back to is the economy OK and are earnings OK? If they are, the market will be OK," he said.

There's a flurry of earnings before the morning bell, including Anthem, Marathon Petroleum, Altria, Ingersoll-Rand, Avery Dennison, Energizer, Pitney Bowes, Johnson Controls and Tupperware. Facebook reports after the close, as does MetLife, Allstate, Ameriprise, Tractor Supply, Lincoln National, American Financial Group, IAC/InterActive, Cirrus Logic, Symantec, Cabot and Shutterfly.