Stock Market Outlook: CIO Says Breadth Will ‘Widen in the Coming Years’

U.S. stocks have rallied in recent weeks on expectations of another Federal Reserve rate cut, but Northwestern Mutual’s chief investment officer, Brent Schutt,e warned that the central bank is still navigating a difficult policy environment marked by weakening labour data and inflation that remains above target.

Schutte said the Fed continues to “walk a delicate balance” as it weighs slowing job growth against persistent price pressures. 

The challenge has intensified, he noted, because a lack of federal economic reports following the government shutdown has forced policymakers to rely on patchier private-sector data.

That uncertainty is unfolding against what Schutte described as a “K-shaped” economy, in which interest rate-sensitive sectors such as manufacturing, housing and smaller companies have lagged, while high-income consumers and Large-Cap stocks tied to the artificial intelligence boom continue to outperform. 

Diverging conditions, he said, increase the risk that a policy that helps one segment “may inadvertently drag down the other.”

Still, Schutte expects the market’s narrow leadership to broaden. “We are confident that the equity market breadth will widen in the coming years as the benefits of AI continue to push more broadly into the U.S. economy and markets,” he wrote, adding that easing monetary policy and potential fiscal stimulus could support that shift.

He highlighted rising earnings estimates for Small Caps as an early sign of improvement and suggested this could help close the valuation gap with Large Caps.

Schutte cautioned that progress will be gradual, given the lingering effects of tariffs and the potential for further labour-market weakness. 

For now, he said, diversification remains essential, arguing that balanced portfolios are better positioned to capture gains “from a variety of areas while simultaneously buffering against short-term volatility.”