If you're wondering whether the stock market can keep delivering double-digit returns after a stellar run, Kenny Polcari has some thoughts that might cool your enthusiasm. The chief market strategist at SlateStone Wealth sees a bumpier road ahead in 2026, though not necessarily a disaster.

Elections First, Growth Later

Speaking with Maria Bartiromo on Fox News Monday, Polcari acknowledged the market's impressive three-year performance but suggested investors buckle up for what he expects will be a 10 to 12% pullback in 2026. The culprit? Midterm elections creating what he calls "initial market volatility."

Once the political dust settles, though, Polcari believes investor attention will pivot toward the fundamentals that actually matter: economic growth, GDP numbers, and potential tax cuts from President Donald Trump's Big, Beautiful, Bill Act. The Fed Chair selection will also be in play, though Polcari thinks it'll only shake markets if Trump picks someone other than the "Two Kevins"—Kevin Hassett and Kevin Warsh. Interestingly, reports emerged last week that Trump plans to interview Federal Reserve Governor Christopher Waller for the position as well.

Time to Pump the Brakes on Tech?

Here's where Polcari's advice gets interesting. Despite tech stocks driving much of the recent market gains, he's suggesting a more cautious stance in the first half of 2026. "I don't want to chase tech," he stated plainly.

Instead, the strategist is advocating for portfolio diversification into sectors that haven't gotten as much love lately: industrials, healthcare, and basic materials. But his most emphatic call centers on utilities, a sector many investors write off as boring. With AI infrastructure and data centers creating massive energy demands, Polcari sees utilities as positioned for another strong year. "I still think utilities are going to end up having another good year next year," he said.

The Great AI Debate Continues

Polcari's caution toward tech comes amid a fascinating split among market watchers about artificial intelligence's true impact. Citigroup recently set a year-end target of 7,700 for the S&P 500, pointing to robust corporate earnings and continuing AI investment. The firm emphasized that companies actually adopting AI technology (not just talking about it) will be the real winners.

Economist Ed Yardeni takes an even more optimistic view, suggesting the 2020s could mirror the Roaring 1920s, with the S&P 500 potentially hitting 10,000 by decade's end.

But not everyone's drinking the AI Kool-Aid. Some analysts are sounding alarm bells about big tech's AI-fueled transformation, warning that escalating capital expenditures could squeeze profit margins and turn high-growth giants into low-return utilities themselves. It's a legitimate concern when you're spending billions on infrastructure with uncertain payoff timelines.

Utility Stocks Getting Their Moment

For investors looking at the utilities sector Polcari favors, Wall Street analysts have highlighted Dominion Energy Inc (D), Eversource Energy (ES), and Avista Corp (AVA) as high-dividend yielding options worth considering.

Market Performance Check

As for current market conditions, the SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust ETF (QQQ), which track the S&P 500 and Nasdaq 100 respectively, have climbed 16.41% and 20.94% year-to-date, according to Benzinga Pro data. Those are solid returns by any measure, which perhaps makes Polcari's call for caution and diversification all the more worth considering.

Whether 2026 brings the volatility Polcari expects or continues the bull run remains to be seen. But his emphasis on portfolio balance and looking beyond the obvious tech darlings offers food for thought as we head into a year packed with political and economic catalysts.