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This is what to watch Wednesday

As usual, earnings are coming in better than expected, but strategists are hoping that this is the quarter where forecasts will finally beat all expectations.

According to Thomson Reuters, 64 percent of the S&P 500 companies that had reported as of Tuesday morning topped earnings estimates. That compares to a long-term average of 63 percent over the past 22 years.

There are dozens of reports expected Wednesday, with early releases scheduled from Morgan Stanley, Abbott Labs, Northern Trust, St. Jude Medical, Illinois Tool Works, Halliburton and Canadian Pacific Railway. Qualcomm, eBay, American Express, Intel, F5 Networks and Mattel are expected later in the day.

There is no economic data Wednesday, but a recent string of reports, including June retail sales, ISM manufacturing and the June employment report all were much better than expected. June's retail sales jumped 0.6 percent, while just a 0.1 percent increase was expected, and June's 287,000 payrolls were much stronger than projected after a shockingly weak May report. Citigroup's economic surprise index had been negative until recently, popping into positive territory, with the increase in upside surprises.

"What some of the economic surprises are telling us is that you had momentum in the second half of the quarter coming into this quarter," said James Paulsen, chief investment strategist at Wells Capital Management. "What that tends to mean is the quarter (earnings) outperform expectations. I do think the better economic reports and the better economic momentum bodes well for an earnings season that outpaces expectations."

Paulsen said some of the defensive stocks that had done well this year haven't been in vogue in recent sessions, and that's a good sign for the market as well as a sign of an improving economy. "You're starting to see this more and more where industrials, materials, small caps, emerging markets, a lot of the risk-on — somewhat the financials — and technology are doing better," he said.

Stocks closed mixed Tuesday, with the S&P 500 down 3 at 2,163. The Dow, however, rose 25 to 18,559, another record and its eighth positive day in a row, the longest winning streak since March 2013.

Discover Financial fell on its earnings report late Tuesday, but Microsoft shares bounced nearly 4 percent after its results. That could be a positive going into Wednesday's opening bell, and the Dow component could help push the market higher, said Art Hogan, strategist with Wunderlich Securities. Hogan also said the recent economic beats could mean that earnings will be better than expected.

But stock prices have also moved higher, so the market is not tolerant of misses. "Earnings in general have been more positive than negative, but stocks are priced for perfection, so the misses are really seeing a downdraft," he said.

Financials have done fairly well during the earnings period, led by the big banks. Financial stocks are up more than 4 percent in the past month. Tech is up about 5 percent in the same period.

"You're seeing a sector rotation that coincided with the earnings season, but more importantly it's the better-than-expected economic reports," Paulsen said.

"We're still going to have some bad reports, but we're going to have a sense the tide has turned. I think there will be numbers but we're going to see better commentary too," he said.

Earnings are expected to be down 4.3 percent from last year's level, according to Thomson Reuters.

There is Energy Information Administration weekly oil and gasoline inventories data expected at 10:30 a.m. EDT.