A winter wave of COVID-19 may be brewing in the U.S., with many states reporting distinct increases in confirmed cases. More economic stimulus may be necessary if the pandemic worsens from here, but Congress remains deadlocked on the issue. Despite all of this, the stock market was surging on Monday, with the Dow Jones Industrial Average (^DJI -0.93%) up 1.05% at 1:05 p.m. EDT.

Tech giant Apple (AAPL 0.06%) was the Dow's top performer on Monday, rallying hard one day before the company is expected to announce iPhones that feature 5G technology. Shares of Cisco Systems (CSCO -1.50%) were also higher despite an analyst downgrade.

5G text over earth.

Image source: Getty Images.

Apple surges ahead of iPhone event

If 2020 were a normal year, Apple's latest iPhones would have likely already launched. But supply chain disruptions due to the COVID-19 pandemic forced Apple to delay the launch by a few weeks. At an event in September, Apple unveiled new Apple Watches, iPads, and subscription services, but the iPhone was absent.

The story changes tomorrow when Apple is expected to announce its iPhone 12 lineup at an event scheduled for 10 a.m. PDT. While nothing has been confirmed about the devices so far, the new iPhones are expected to sport a new form factor, multiple display size options, and 5G connectivity.

The support for 5G may be enough to spur elevated upgrade activity from those with older iPhones, but the jury is still out on how much consumers really care about the latest wireless technology. Apple has seen strong sales of iPhones during the pandemic, partly due to the launch of the affordable iPhone SE, and partly due to economic stimulus. Whether full-priced iPhones sell as well absent additional stimulus is an open question.

Apple stock was soaring on Monday as investors looked ahead to the iPhone event, up 5.5% by early afternoon. Wedbush analyst Daniel Ives maintained his outperform rating and $150 price target going into the event, saying that an iPhone with the faster mmWave 5G technology could be a game changer. Ives is expecting four iPhone models ranging in price from $699 to $1,099.

Monday's rally reverses some of Apple's recent losses. The stock has gained about 68% this year, but it's down around 8% since peaking in the beginning of September.

Cisco shakes off downgrade

Networking hardware giant Cisco was hit with an analyst downgrade on Monday. Citi analyst Jim Suva believes that lower enterprise demand for branded networking hardware due to the pandemic will turn out to be a permanent headwind for Cisco and other networking hardware providers. Suva sees the shift to flexible work environments increasing demand for cloud and cheap, unbranded white-box hardware at the expense of proprietary, branded products.

Suva worries that this shift could hurt Cisco's sales in the long run and reduce the valuation multiple afforded the stock. Suva lowered his rating on Cisco stock from buy to neutral, and he dropped his price target from $48 to $43.

While there may be some permanent changes that stem from the pandemic, these threats facing Cisco are nothing new. White-box hardware has been around for a long time, and cloud adoption is not a new phenomenon.

Enterprise customers aren't buying Cisco's expensive hardware for no reason. They're buying it partly due to high switching costs, and partly because the total cost of ownership matters more than the upfront cost. Cisco CEO Chuck Robbins said a few years ago that companies typically spend $15 on operating costs over five years for every dollar spent on networking equipment. There's a good reason why Cisco still commands dominant shares of the enterprise switching and routing markets despite its premium pricing.

Cisco investors ignored the analyst commentary, sending the stock up about 1.1% by early Monday afternoon. Shares of Cisco are down about 16% so far this year.