The Blues dropped to 10th in the National League table after starting 2017 in miserable fashion, losing to Moors for the second time in the space of a week after going down 3-2 in the away clash on Boxing Day.
Goals from Jamey Osborne, Liam Daly and a Harry White penalty sealed the success for the Midlands side, leaving the home congregation deflated come the final whistle.
Said the Blues boss: "We had a big crowd in for New Year, all wanting to come and be entertained and see this team that has been doing so well this year and we have been beaten 3-0 at home. It's a disaster for us, an absolute disaster.
"The dressing room reflects it, we reflect it and I can't sing the praises of too many people, it is just one we will have to take.
"We didn't defend well, it just sums up the game. It's just massively disappointing for us as a group."
Chester had chances in the opening 15 minutes with Jordan Chapell forcing an early save from Moors keeper Danny Lewis and Sam Hughes hitting the bar with a header, but from then on it was Solihull who dominated the contest.
It was, arguably, Chester's worst display of the season, and McCarthy apologised to fans when speaking to the press after the game.
He said: "We apologise to all those who have come out on New Year's Day, and the tradition that it is, and wanted to see their team win. We are genuinely sorry for that. Sometimes football just does that to us. We will go away and look at it and see what we can put right."
Chester are back in National League action on Saturday when they make the long trip down to Essex to face Braintree Town (3pm).