Stocks to Buy in January 2026
Inflation Watch, Bank Earnings, AI Risks, and Where Smart Money Is Looking This Year
Morningstar strategists David Sekera, CFA and Susan Dziubinski have kicked off 2026 with a deep dive into what investors should expect—and where opportunities (and risks) lie.
Here’s the simplified breakdown
Big Picture: What’s Driving the Market Right Now?
1️⃣ Inflation: Cooling, But Not Falling Further
• CPI (headline & core) expected at 2.7% YoY — unchanged
• PPI shows mild monthly increases
• Bottom line: Inflation isn’t getting worse, but it’s not improving either
Investor takeaway:
Don’t expect aggressive rate cuts anytime soon.
2️⃣ Interest Rates: Fed Likely on Hold
• January rate cut probability: near zero
• Fed chair transition coming in May
• Morningstar expects 2 cuts in 2026, more in 2027
Investor takeaway:
Markets are adjusting to a “higher-for-longer” rate environment, not a sudden pivot.
3️⃣ Market Reaction to Headlines: Mostly Noise
• DOJ investigation into Fed Chair Jerome Powell caused minor dips
• Dow fell ~0.6%, bonds and dollar barely moved
Investor takeaway:
Short-term political noise ≠ long-term market damage.
Earnings Season Spotlight: Big Banks
What’s going right for banks:
• Steepening yield curve → higher net interest margins
• Strong economy → low default rates
• Rising M&A activity → higher fee income
• Markets near highs → strong asset management fees
The problem? Valuations
• JPMorgan, Citi, Wells Fargo → 2-star stocks
• Bank of America → borderline 2–3 stars
• Most good news already priced in
Investor takeaway:
Banks may report great earnings, but upside is limited at current prices.
AI & Semiconductors: Still Strong, But Expensive
Taiwan Semiconductor (TSM)
• AI demand still outpacing supply
• Expected 17% revenue growth in 2026
• Operating margins nearing 50%
• Stock already near fair value after a 43% rally
Investor takeaway:
AI fundamentals remain strong, but new buyers should wait for pullbacks.
️ Defense Stocks: Tailwinds, But Mostly Fully Priced
• Trump proposes $1.5 trillion defense budget
• Long-term demand remains strong (US + Europe)
• But…
• Lockheed Martin, Northrop Grumman, Huntington Ingalls now trade near fair value
Investor takeaway:
Hold, don’t chase. Not cheap enough for new buys, not weak enough to sell.
Constellation Brands (STZ): A Value Opportunity?
What improved:
• Beer revenue decline slowed to -1%
• Strong free cash flow
• Aggressive share buybacks
Valuation:
• Trades at 33% discount to fair value
• Dividend yield: ~2.8%
• Still a 5-star stock
Investor takeaway:
Requires patience, but long-term value investors may like this one.
2026 Stock Market Outlook: How Should Investors Position?
Overall Market:
• US market trading at ~4% discount
• Undervaluation concentrated in a few mega-cap AI stocks
Recommended Strategy:
Barbell Portfolio
• One side: AI & Tech leaders
• Other side: High-quality value stocks
This helps:
• Capture AI upside
• Reduce volatility risk
• Rebalance smartly during sell-offs
Where the Value Is in 2026
Most Undervalued Areas:
• Small-cap stocks (~15% discount)
• Real Estate (excluding office)
• Technology (AI-driven)
• Energy
• Communication services (ex-Meta & Alphabet)
Overvalued / Underweight:
• Consumer defensive (Walmart & Costco heavy)
• Financials
• Industrials tied to AI buildout hype
⚠️ Key Risks to Watch in 2026
• AI expectations too high
• Trade & tariff negotiations
• Inflation from tariffs
• Political volatility
• Private credit market stress
• China’s slowing economy
• Japanese yen & bond market risks
Investor takeaway:
Expect higher volatility—but volatility creates opportunity.
⭐ Morningstar’s Stock Picks for January 2026
SLB (Schlumberger) – Energy services, Venezuela tailwind
Mondelez (MDLZ) – Global snacks, emerging market exposure
Alliant Energy (LNT) – Utility with data center growth
Omnicom (OMC) – Advertising giant trading at deep discount
Albemarle (ALB) – Long-term lithium & EV play (high risk, high reward)
Final Takeaway for Investors
• Don’t chase headlines
• Valuation matters more than hype
• Balance AI growth with value stability
• 2026 will reward disciplined, patient investors
Inflation Watch, Bank Earnings, AI Risks, and Where Smart Money Is Looking This Year
Morningstar strategists David Sekera, CFA and Susan Dziubinski have kicked off 2026 with a deep dive into what investors should expect—and where opportunities (and risks) lie.
Here’s the simplified breakdown
Big Picture: What’s Driving the Market Right Now?
1️⃣ Inflation: Cooling, But Not Falling Further
• CPI (headline & core) expected at 2.7% YoY — unchanged
• PPI shows mild monthly increases
• Bottom line: Inflation isn’t getting worse, but it’s not improving either
Investor takeaway:
Don’t expect aggressive rate cuts anytime soon.
2️⃣ Interest Rates: Fed Likely on Hold
• January rate cut probability: near zero
• Fed chair transition coming in May
• Morningstar expects 2 cuts in 2026, more in 2027
Investor takeaway:
Markets are adjusting to a “higher-for-longer” rate environment, not a sudden pivot.
3️⃣ Market Reaction to Headlines: Mostly Noise
• DOJ investigation into Fed Chair Jerome Powell caused minor dips
• Dow fell ~0.6%, bonds and dollar barely moved
Investor takeaway:
Short-term political noise ≠ long-term market damage.
Earnings Season Spotlight: Big Banks
What’s going right for banks:
• Steepening yield curve → higher net interest margins
• Strong economy → low default rates
• Rising M&A activity → higher fee income
• Markets near highs → strong asset management fees
The problem? Valuations
• JPMorgan, Citi, Wells Fargo → 2-star stocks
• Bank of America → borderline 2–3 stars
• Most good news already priced in
Investor takeaway:
Banks may report great earnings, but upside is limited at current prices.
AI & Semiconductors: Still Strong, But Expensive
Taiwan Semiconductor (TSM)
• AI demand still outpacing supply
• Expected 17% revenue growth in 2026
• Operating margins nearing 50%
• Stock already near fair value after a 43% rally
Investor takeaway:
AI fundamentals remain strong, but new buyers should wait for pullbacks.
️ Defense Stocks: Tailwinds, But Mostly Fully Priced
• Trump proposes $1.5 trillion defense budget
• Long-term demand remains strong (US + Europe)
• But…
• Lockheed Martin, Northrop Grumman, Huntington Ingalls now trade near fair value
Investor takeaway:
Hold, don’t chase. Not cheap enough for new buys, not weak enough to sell.
Constellation Brands (STZ): A Value Opportunity?
What improved:
• Beer revenue decline slowed to -1%
• Strong free cash flow
• Aggressive share buybacks
Valuation:
• Trades at 33% discount to fair value
• Dividend yield: ~2.8%
• Still a 5-star stock
Investor takeaway:
Requires patience, but long-term value investors may like this one.
2026 Stock Market Outlook: How Should Investors Position?
Overall Market:
• US market trading at ~4% discount
• Undervaluation concentrated in a few mega-cap AI stocks
Recommended Strategy:
Barbell Portfolio
• One side: AI & Tech leaders
• Other side: High-quality value stocks
This helps:
• Capture AI upside
• Reduce volatility risk
• Rebalance smartly during sell-offs
Where the Value Is in 2026
Most Undervalued Areas:
• Small-cap stocks (~15% discount)
• Real Estate (excluding office)
• Technology (AI-driven)
• Energy
• Communication services (ex-Meta & Alphabet)
Overvalued / Underweight:
• Consumer defensive (Walmart & Costco heavy)
• Financials
• Industrials tied to AI buildout hype
⚠️ Key Risks to Watch in 2026
• AI expectations too high
• Trade & tariff negotiations
• Inflation from tariffs
• Political volatility
• Private credit market stress
• China’s slowing economy
• Japanese yen & bond market risks
Investor takeaway:
Expect higher volatility—but volatility creates opportunity.
⭐ Morningstar’s Stock Picks for January 2026
SLB (Schlumberger) – Energy services, Venezuela tailwind
Mondelez (MDLZ) – Global snacks, emerging market exposure
Alliant Energy (LNT) – Utility with data center growth
Omnicom (OMC) – Advertising giant trading at deep discount
Albemarle (ALB) – Long-term lithium & EV play (high risk, high reward)
Final Takeaway for Investors
• Don’t chase headlines
• Valuation matters more than hype
• Balance AI growth with value stability
• 2026 will reward disciplined, patient investors