McCarthy remained out of inter-county coaching for several years before returning as manager of the Waterford senior hurling team on 16 November 1996. In his first year in charge he introduced a new training regime and cut a number of players from the panel. Waterford later lost at home to Dublin and failed to win promotion from Division Two of the National League. In their opening game of the championship a Limerick team in decline beat them by six points and Waterford's campaign ended unceremoniously.