As the 2026 trading year kicks into high gear, Wall Street is closely watching the latest reshuffling of Piper Sandler’s influential 'Macro Select' model. After a stellar 2025 that saw the model outpace the broader market by a significant margin, Chief Investment Strategist Michael Kantrowitz has signaled a definitive shift in strategy. The new year’s portfolio is moving away from the narrow leadership of mega-cap technology and toward what Kantrowitz calls "cyclical quality value"—a basket of large-cap bargain stocks positioned to thrive as the economic cycle normalizes.

The immediate implications are clear: the "Magnificent 7" era of market dominance is facing a challenge from a broadening list of participants. With the Federal Reserve finally entering a sustained easing cycle and new fiscal tailwinds emerging, the 'Macro Select' model suggests that the most lucrative opportunities for 2026 lie in overlooked corners of the industrial, utility, and consumer discretionary sectors. Investors are already reacting, rotating capital into the model's top-decile picks as they hunt for alpha in a market that is no longer satisfied with growth at any price.

The 'HOPE' Framework and the 2025 Victory Lap

The 'Macro Select' model’s success is rooted in Piper Sandler’s proprietary "HOPE" framework—an acronym for Housing, Orders, Profits, and Employment. This lead-lag logic allowed the firm to correctly predict the "broadening" of the market in 2025. While the S&P 500 posted a respectable 16% return last year, the Macro Select basket delivered a robust 22%, generating roughly 600 basis points of alpha. This outperformance was driven by an early pivot toward companies with high levered profitability and positive earnings revisions, even as recession fears lingered in the headlines.

The timeline leading to the 2026 update began in late 2025, as a sluggish labor market finally forced the Federal Reserve to accelerate interest rate cuts. This move served as the catalyst for what Kantrowitz describes as the "Eureka Moment"—the point where lower rates began to meaningfully heal the housing and manufacturing sectors. Market participants, led by institutional heavyweights, have increasingly adopted the 'Macro Select' methodology as a roadmap for navigating this transition from a high-rate environment to a more balanced economic footing.

Key stakeholders, including Piper Sandler’s Chief Market Technician Craig Johnson and retail analyst Peter Keith, have been instrumental in refining the 2026 list. Their combined approach integrates quantitative screens with fundamental catalysts, such as the anticipated $191 billion in individual tax relief from the "One Big Beautiful Bill" Act. The initial reaction from the trading floor has been one of cautious optimism, with a notable uptick in volume for the model's new "bargain" additions as the January effect takes hold.

Winners and Losers: The New 2026 Bargain Basket

The 2026 'Macro Select' update has introduced nine specific large-cap and mid-cap "bargain" stocks to its core basket. These companies were selected based on a rigorous screen for high earnings yield and positive revisions. Among the most notable additions is AT&T (NYSE: T), which is viewed as a high-quality value play in a stabilizing communication services sector. Similarly, NRG Energy (NYSE: NRG) has emerged as a top-decile pick, benefiting from the massive power demands of AI data centers and a sharpened operational focus under new leadership.

In the consumer and industrial space, the model has added Brinker International (NYSE: EAT) and Graham Holdings (NYSE: GHC), betting on a resurgence in discretionary spending. Industrial stalwarts like Deluxe Corporation (NYSE: DLX) and Mueller Water Products (NYSE: MWA) have also made the cut, alongside energy player Par Pacific Holdings (NYSE: PARR). The real estate and utility sectors are represented by Kilroy Realty (NYSE: KRC), UGI Corporation (NYSE: UGI), and Clearway Energy (NYSE: CWEN), all of which are expected to see valuation expansions as the Fed’s easing cycle lowers the cost of capital.

Conversely, the "losers" in this strategic shift are the speculative, non-earning growth stocks that dominated previous cycles. Piper Sandler analysts are advising a move away from "bubble-esque" names that lack self-financing capabilities. While still bullish on the AI revolution, the firm is shifting its focus to the "infrastructure phase" of the trade. This favors companies like Corning (NYSE: GLW) and Ciena (NYSE: CIEN)—firms that provide the physical backbone for AI expansion—over high-multiple software companies that have yet to prove their path to profitability.

Broadening Horizons: Trends and Ripple Effects

The shift in the 'Macro Select' model reflects a broader industry trend toward market "normalization." For years, the S&P 500's performance was top-heavy, dictated by a handful of tech titans. However, the 2026 outlook suggests a return to a more democratic market where sector rotation becomes the primary driver of returns. This trend is being amplified by the "One Big Beautiful Bill" Act, which is expected to provide a significant boost to middle-income households. Retailers like Home Depot (NYSE: HD), Lowe's (NYSE: LOW), and Best Buy (NYSE: BBY) are positioned as primary beneficiaries of this fiscal stimulus.

The ripple effects extend to the competitive landscape of asset management. As the 'Macro Select' model continues to outperform, other research firms are being forced to re-evaluate their reliance on momentum-based strategies. The historical precedent for this shift can be found in the post-dot-com era or the recovery following the 2008 financial crisis, where value and cyclical stocks led the market out of a period of narrow concentration. Piper Sandler’s emphasis on "quality value" suggests that the market is entering a phase where fundamental strength and valuation discipline matter more than sheer growth projections.

Regulatory and policy implications also loom large. The success of the "bargain" basket is partially predicated on the continued implementation of tax relief and a predictable path for interest rates. Any deviation from the Fed’s expected easing trajectory could pose a risk to the cyclical recovery. However, the model’s focus on companies with high return on equity (ROE) provides a buffer, as these firms are historically better equipped to handle volatility and maintain dividend payments in uncertain environments.

The Road Ahead: 'Jump, Slump, and Pump'

Looking toward the rest of 2026, Piper Sandler’s Craig Johnson has outlined a "Jump, Slump, and Pump" trajectory for the markets. The "Jump" is already underway in the first quarter, driven by the January effect and the initial deployment of tax relief funds. However, investors should prepare for a "Slump" mid-year, as political noise surrounding the upcoming midterm elections and potential geopolitical tensions could trigger a period of consolidation. The year is expected to conclude with a "Pump," as the S&P 500 marches toward a year-end price target of 7,150.

Strategically, the biggest challenge for investors will be fighting the urge to chase the previous year's winners. The 'Macro Select' model suggests that the most significant gains will come from those who successfully pivot into the "cyclical quality" names before the broader market fully prices in the recovery. Companies like Starbucks (NASDAQ: SBUX) and Floor & Decor (NYSE: FND) are being watched as early indicators of this trend; if these consumer-facing stocks can beat earnings expectations in the first half of the year, it will confirm the model's thesis of a broadening economic recovery.

In the long term, the AI trade is expected to mature from a speculative frenzy into a fundamental growth driver. The transition from "AI hype" to "AI utility" will require companies to demonstrate real-world applications and revenue generation. Piper Sandler’s preference for infrastructure-related names suggests that the next phase of the tech trade will be more grounded in physical assets and hardware, providing a more stable foundation for the sector's continued growth.

Summary and Investor Takeaways

The 2026 update to Piper Sandler’s 'Macro Select' model marks a pivotal moment for equity markets. By moving aggressively into large-cap bargain stocks and cyclical quality names, the firm is betting on a "Eureka Moment" where lower rates and fiscal stimulus finally ignite the broader economy. The model's 2025 performance has given it significant credibility, and its current focus on stocks like AT&T (NYSE: T), NRG Energy (NYSE: NRG), and Home Depot (NYSE: HD) provides a clear roadmap for investors looking to diversify away from mega-cap tech.

As the year progresses, the key for investors will be monitoring the "HOPE" framework—specifically the employment and profit components—to ensure the recovery remains on track. While the path to 7,150 on the S&P 500 may be characterized by mid-year volatility, the underlying strength of the "bargain" basket suggests that the broadening market is here to stay. Investors should keep a close eye on earnings revisions and the impact of tax relief on consumer behavior, as these will be the primary engines of alpha in 2026.

This content is intended for informational purposes only and is not financial advice