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Elevated expectations for Apple ahead of earnings

Earnings season gathers steam this week, with Apple among the 142 S&P 500 companies slated to release fourth-quarter results.

Fourth-quarter earnings are expected to grow 3.4 percent over the same period a year ago, according to Thomson Reuters.

"So far, and in line with normal trends, more companies are surprising on the upside than on the downside," David Kelly, chief global strategist at J.P. Morgan Funds, wrote in emailed commentary.

"However, analyst expectations have been marked down relentlessly over the past few months due to the impact of a higher dollar and cheaper oil," Kelly said.

Of the 95 S&P 500 companies that reported fourth-quarter earnings as of Monday morning, 71.6 percent beat estimates, 9.5 percent met expectations and 18.9 percent missed, according to David Aurelio, a research analyst at Thomson Reuters.

Typically, or since 1994, 63 percent of companies beat estimates, 16 percent match and 21 percent miss, he noted.

247 Bedford Ave is rumored to be the location of a new Apple Store in Williamsburg, Brooklyn.
Source: Google Maps
247 Bedford Ave is rumored to be the location of a new Apple Store in Williamsburg, Brooklyn.

The energy and financial sectors are among those disappointing.

"Last week, regional banks reported some decent earnings and revenue figures that were much better than their larger peers; however, financial sector results continue to drag down the overall numbers among the early reporting fourth-quarter 2014 companies," said Nick Raich, chief executive officer at the Earnings Scout.

While weighing heavily on the energy sector, the lower cost of fuel proved beneficial to many industrial companies and carriers in particular, with Delta Air Lines last week reporting fourth-quarter results that beat both top and bottom-line estimates. Southwest Airlines also beat profit estimates, with the carrier standing to gain "more than most competitors from lower fuel costs given its lack of hedges," Aurelio and his colleague Greg Harrison said.

Apple reports after the close on Tuesday, with profits from the consumer-technology supplier forecast to be 25 percent higher than a year earlier, said Bill Stone, chief investment strategist at PNC Asset Management Group.

"Analysts expect Apple to report earnings above the consensus due to a strong holiday season with increased handset volumes and higher average selling prices," Aurelio and Harrison wrote.