'The two primary factors that lead me to make decisions in the U.S. bond market and for U.S. currency are both going up,' says Keith McCullough

Stock and bond investors are fumbling in the fog of the U.S. budget deficit, the dollar and how to trade the Trump administration's tax bill, which passed the House early Thursday.

Yet for Keith McCullough, the chief executive of investment service Hedgeye Risk Management, the message from the bond market and the currency market is clear-cut.

"The primary driver of why I don't own any Treasurys and why I've been reducing my gold (GC00) position - which has been my biggest position - down to its minimum, is that the rate of change for U.S. growth and inflation are going up," McCullough says.

"The U.S. is not entering a recession," he adds. "The two primary factors that lead me to make decisions in the U.S. bond market and for U.S. currency in particular are both going up."

McCullough isn't saying that higher bond yields are here to stay. "There's a deep and dark graveyard of people that have tried to call the end of the U.S. Treasury bond," he notes. But seeing no recession for the next three or four quarters, and therefore no Federal Reserve rate cuts, McCullough is comfortable without any exposure to U.S. government debt.

"I'm not denying that there's not risk associated with U.S. debt and the U.S. deficit," McCullough says. "But I don't see the 10-year U.S. Treasury (TY00) yield going much below 4.43%. Whereas three weeks ago, I could easily see 4%."

McCullough is holding some fixed-income, specifically high-yield corporate debt. "What is high-yield telling you? High-yield spreads aren't even moving," he says. "I'm long on high-yield bonds again. That's what you do when the economy stops decelerating and starts reaccelerating."

He adds: "There's nothing in high-yield spreads for the high-yield bond market that is suggesting we're going to have a recession either broadly in the U.S. or in corporate profits anytime soon. If anything, our outlook for growth really starts to improve in the fourth quarter and into the first quarter of next year."

'We've taken out basically all of our rate-cut forecast for this year.'

The U.S. dollar (DX00) should find more support under these economic conditions, McCullough says. He still recommends a long position in the euro (EURUSD), the Australian dollar (AUDUSD) and European stocks, particularly in Germany, Spain and Belgium. But he's less bearish on the greenback.

"What the dollar looks like in my model is that the worst for now is backward-looking. That would make sense because so many people are hopped up on deficit spending. [If] I'm right, there is no U.S. recession and inflation starts to go back up," McCullough says.

"We've taken out basically all of our rate-cut forecast for this year," he adds. "The Fed might get away with one, I don't know. But the Fed's not going to cut as much as investors think or want."

Read: Investors have been rattled by a rising U.S. bond yield. They should be more worried about Japan.

Plus: This chart shows why investors should be worried about the latest bond-market selloff

-Jonathan Burton

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.