Traders could get a clue Wednesday about the big employment report coming on Friday — and get a good idea of how sure the case is for an interest rate hike next week.
The ADP National Employment report for February is scheduled for release Wednesday morning and should show creation of 190,000 private payrolls in February, according to analysts polled by Reuters. In January, the private sector added a surprisingly high 246,000 jobs.
"Whether it comes in near consensus, that's going to be a sign Friday may be near consensus, and that's sort of the final data point holding us up before the Fed rate hike," said Brian Schaitkin, senior economist at The Conference Board.
"Only a number on the low end might cause the Fed to pause," he said.
The Bureau of Labor Statistics is set to report nonfarm payrolls on Friday, along with wage and unemployment figures.
"I think tomorrow's ADP number can move the market," said Bryce Doty, senior fixed income manager with Sit Investment Associates. "I wouldn't be surprised if it was stronger than expected, over 200K."
While the ADP report often fails to provide a direct indication of Friday's headline figure, analysts will look to both reports for confirmation that the economy is on solid enough footing for the Federal Reserve to raise interest rates as early as next week.
Treasury yields jumped last Friday after Fed Chair Janet Yellen indicated the central bank was ready to hike at its March meeting. The U.S. two-year yield (U.S.:US2Y) hit a fresh high going back to 2009 and was hovering just below that level Tuesday afternoon, near 1.32 percent.
"I think the Fed has signaled not just that they're raising rates in March, but that they're on a different trajectory," Doty said. He now expects the Fed to hike every other meeting, for at least three rate hikes this year.
Other economic reports due Wednesday morning include weekly mortgage applications and January wholesale inventories. China is also scheduled to report its trade balance overnight.
The Bureau of Labor Statistics is also set to report revised fourth-quarter productivity, which analysts expect to show a slight increase from the preliminary reading, to an annualized rise of 1.4 percent. Revised fourth-quarter labor costs are set to rise 1.7 percent, unchanged from the initial read.
"We need productivity growth to pick up to help increase the economy's speed limit," said Ryan Sweet, director of real time economics at Moody's Analytics.
U.S. stocks closed slightly lower, with the Dow Jones industrial average and S&P 500 posting their first two-day decline since January.
"I think we're taking a bit of a pregnant pause," said Andy Kapyrin, director of research for RegentAtlantic, which has $3 billion in assets under management.
Biotech and health care stocks fell after President Donald Trump tweeted that he was working on a "new system" for drug prices, which would come "way down." Late Monday, Republicans released a proposal to repeal and replace the Affordable Care Act. The president said he supports the plan, which he said is also open to negotiation.
The S&P closed nearly 7 points lower, at 2,368. Almost all sectors closed lower, led by a 0.9 percent decline in the energy sector.
U.S. crude oil futures settled 6 cents lower at $53.14 a barrel. Oil prices gave up gains after Saudi Oil Minister Khalid Al-Falih gave mixed messages on future production cuts by the Organization of the Petroleum Exporting Countries.
Speaking at the CERAWeek energy conference in Houston, Falih said last year's historic agreement by OPEC and non-OPEC countries to curb supply and raise oil prices has improved market fundamentals. However, he said Saudi Arabia will only manage production for "a restricted period of time."
Oil prices fell in extended trade after the American Petroleum Institute said crude stocks rose 11.6 million barrels, versus the Reuters estimate of 2 million.
The U.S. Energy Information Administration is scheduled to report weekly crude inventories Wednesday morning. Analysts polled by Reuters expect a supply increase of 2 million barrels.
Earnings due before the bell Wednesday include Adidas, Bob Evans (BOBE), Valspar, The Children's Place (PLCE), Express, Orbital ATK (: OA'WI), Yintech Investment (YIN) and Vera Bradley. Bankrate (RATE), Camping World, e.l.f. Beauty, Sunrun and United Natural Foods are set to post earnings after the close.
— CNBC's Tom DiChristopher contributed to this report.