It will be a 'stock picker's market' this year, expert says

Winthrop Capital Management CIO Adam Coontz’s 2026 Market Outlook

Key Concepts:

• AI Momentum: Continued growth and influence of Artificial Intelligence on the market.
• Stock Picker’s Market: A market environment favoring selective investment based on individual company analysis rather than broad market trends.
• Mag 7: The seven largest technology companies (Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta) that significantly influenced the 2025 market.
• Equal Weight S&P 500: An S&P 500 index where each company has the same weighting, providing a broader market representation.
• Lagging Indicator (Employment Numbers): Economic data that changes after a trend has already begun, making it less useful for predicting future economic activity.
• Quantitative Easing (QE): A monetary policy where a central bank purchases government securities or other assets to increase the money supply and lower interest rates.
• Balance Sheet Run-off/Replication: The process of a central bank reducing (run-off) or increasing (replication) its holdings of assets, impacting liquidity and interest rates.
• Mortgage-Backed Securities (MBS): Investments representing claims to the cash flows from a pool of mortgage loans.
• Basis Points: A unit of measurement used in finance to describe the percentage change in an interest rate or yield (1 basis point = 0.01%).

I. Market Outlook for 2026: Cautious Optimism & Stock Selection

Adam Coontz, CIO of Winthrop Capital Management, expresses a “cautiously optimistic” outlook for the broader markets in 2026. He anticipates the continuation of the Artificial Intelligence (AI) momentum but believes the market will transition into a “stock picker’s market.” This means success will depend more on identifying individual winning stocks rather than relying on broad market trends. While the “Mag 7” companies heavily influenced the S&P 500 in 2025, the equal-weighted S&P 500 also demonstrated strong returns, indicating broader market strength. Coontz predicts increased divergence between winners and losers in 2026, requiring more focused research and analysis. He cites Oracle as an example of a stock that experienced hype and subsequent correction, viewing this as a sign of a healthy market correcting excesses.

II. Inflation, Employment, and Consumer Resilience

Despite inflation remaining above the Federal Reserve’s 2% target, Coontz maintains a bullish stance on the U.S. economy and consumer. He argues that employment numbers are a “lagging indicator” and that overall sentiment and retail sales remain resilient. He believes any potential job losses will be temporary, as companies are hesitant to lay off employees quickly. This perspective contrasts with earlier economic forecasts predicting recessions and significant labor market issues. He states, “We don’t see any reason for that to change,” referencing the continued strength of the labor market and consumer spending.

III. Key Risks: Fed Policy & Labor Market Disconnect

Coontz identifies the biggest risk to the market as a potential disconnect between the Federal Reserve’s policy and the labor market. He explains that if the Fed relies too heavily on lagging employment data and moves too slowly to adjust interest rates, it could be too late to prevent a recession if the labor market deteriorates. He describes this scenario as a “doomSDAY scenario,” where the Fed would struggle to reverse a significant market downturn. He emphasizes the importance of the Fed recognizing a weakening labor market before it’s fully reflected in the data.

IV. Federal Reserve Leadership Change & Monetary Policy

The upcoming leadership change at the Federal Reserve is discussed, with President Trump expected to appoint a new chair. The leading candidates, Kevin Warsh and Kevin Hassett, are perceived as more inclined to cut interest rates. However, Coontz believes the impact of this change will be limited. He argues that the Fed will remain independent, despite the appointment, and that manipulating short-term interest rates has a limited effect. He predicts that even a 100 basis point rate cut could increase long-term interest rates, impacting consumer loans like mortgages and credit cards.

V. Focus on the Fed’s Balance Sheet & Quantitative Easing

Coontz emphasizes that the most important aspect of the Fed’s policy to watch is its balance sheet. He believes the Fed’s actions regarding asset purchases and sales (Quantitative Easing/Tightening) will have a more significant impact on long-term interest rates than short-term rate adjustments. Specifically, he highlights the potential impact of the Fed resuming purchases of Mortgage-Backed Securities (MBS). He states, “If they started buying them again, that’s where we see some actual changes to kind of the yield curve, the interest rate scenarios and, ultimately, how that’s affecting the consumer.” The Fed has currently stopped “running off” assets but hasn’t begun actively purchasing them again.

VI. Notable Quotes:

• “I think that shows that this market is healthier than probably what a lot of investors think that it is.” – Adam Coontz, regarding the Oracle correction.
• “Employment numbers are a lagging indicator.” – Adam Coontz, emphasizing the delayed nature of employment data.
• “It’s really hard to kind of, you know, pull the jet up when it’s in that big of a nose dive.” – Adam Coontz, describing the difficulty of reversing a severe market downturn.

Synthesis/Conclusion:

Adam Coontz presents a cautiously optimistic outlook for 2026, emphasizing the importance of stock selection in a shifting market dynamic. He believes the U.S. economy and consumer remain resilient, but warns of the risks associated with a potential disconnect between the Fed’s policy and a deteriorating labor market. He urges investors to focus less on short-term interest rate manipulations and more on the Fed’s balance sheet actions, particularly regarding Mortgage-Backed Securities, as these will have a more substantial impact on long-term interest rates and consumer finance. The overall message is one of cautious optimism tempered by the need for diligent research and a keen awareness of potential risks.