When the World Turns Away from the U.S. There's Always a Bull Market Somewhere

Investing in stocks inherently involves greater risks, which is why they often offer higher returns. However, American investors should recognize that U.S. stocks may not currently deliver the best rewards. This shift is largely due to a variety of economic and political factors creating uncertainty in the U.S. market.

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Tariffs, trade disputes, federal budget conflicts, inflation, and reduced government spending have all contributed to this unease, affecting investors, businesses, and consumers alike.

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Globally, investors are also questioning the long-standing belief in American economic dominance, leading many to redirect their investments toward local markets. As a result, U.S. stocks and the dollar have weakened, while financial markets in Europe and parts of Asia are gaining an advantage.

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Keith McCullough, CEO of Hedgeye Risk Management, sees this environment as an opportunity. Hedgeye’s investment strategy is distinctive because it is not constrained by traditional benchmarks, geographic borders, or prevailing market beliefs. McCullough manages an active, globally flexible portfolio, which includes his personal investments disclosed to subscribers.

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This portfolio primarily uses exchange-traded funds (ETFs) due to their cost efficiency and liquidity. Hedgeye’s approach involves acting ahead of major market decisions. By anticipating moves from Wall Street and government authorities, McCullough positions the firm to react before the broader market does.

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In a recent conversation with MarketWatch, McCullough shared his outlook on U.S. and international markets, along with predictions for Federal Reserve policy and the Trump administration’s impact on the economy. He emphasized the importance of looking beyond U.S. markets, adopting a proactive investment approach, and preparing for potential interest rate cuts as the U.S. economy slows.

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According to McCullough, investors must acknowledge that the current market is heavily influenced by political changes. Relying on conventional long-term strategies, such as dollar-cost averaging, may no longer be sufficient.

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Many investors are heavily weighted in U.S. equities despite recent declines. McCullough advises adopting a diversified strategy by rotating into other asset classes, such as precious metals, bonds (including U.S. Treasury and high-yield corporate bonds), and international equities. He points out that the U.S.’s aggressive stance in global trade is encouraging other regions, particularly Europe and Asia, to strengthen their alliances and reduce reliance on the American market.

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For instance, McCullough highlights Germany’s growing commitment to electric vehicles while expressing skepticism toward American brands like Tesla. He suggests that the confrontational approach of figures like Elon Musk and former President Donald Trump alienates international consumers, which could have long-term market consequences.

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McCullough’s investment strategy is built on a “go-anywhere” framework, allowing him to invest in any asset class worldwide. Currently, he favors defensive positions such as gold, silver, and gold-mining stocks, which he accesses through the VanEck Gold Miners ETF (GDX). Given signs of a slowing U.S. economy, he has also increased his holdings in long-term U.S. Treasury bonds using the iShares 20+ Year Treasury Bond ETF (TLT). He notes that nine of the thirteen economic indicators tracked by Hedgeye’s model show signs of deceleration.

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His portfolio has recently shifted away from riskier assets. For example, Hedgeye sold its positions in Bitcoin and the Nasdaq-100, opting instead for safer investments. On the international front, McCullough is bullish on European equities, citing accelerating growth in the region. He holds positions in the Vanguard FTSE Europe ETF (VGK) and has also invested in country-specific funds like the iShares MSCI Poland ETF (EPOL) and the iShares MSCI Sweden ETF (EWD).

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Additionally, he holds a long position in the British pound via the Invesco CurrencyShares British Pound Sterling Trust (FXB), reflecting his belief that the dollar will continue to weaken.

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In Asia, McCullough favors Singapore through the iShares MSCI Singapore ETF (EWS), while remaining neutral on Japan’s stock market but long on the yen via the Invesco CurrencyShares Japanese Yen Trust (FXY). He views China as a potential growth opportunity in the latter half of the year.

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McCullough emphasizes the importance of currency positions in a diversified portfolio, especially as the U.S. dollar continues to decline. He predicts a 12% to 15% depreciation from its recent peak, which could push the euro to 112 or 115 against the dollar. Currency markets, he argues, are less influenced by speculative narratives compared to equities, making them a more reliable indicator of economic trends.

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He also anticipates at least three Federal Reserve interest rate cuts totaling 75 basis points in the coming year. With the U.S. labor market showing signs of weakness and inflation remaining below the Fed’s target, McCullough believes the central bank will be pressured to act. Despite official statements suggesting otherwise, he argues that political realities will push policymakers toward easing measures to support the economy.

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Within the U.S. market, McCullough finds value in sectors supported by explicit government policies, such as natural gas and steel. His portfolio includes the United States Natural Gas Fund (UNG), reflecting a belief in the long-term impact of reshoring initiatives aimed at revitalizing domestic industries.

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To navigate a slowing economy, McCullough prefers “boring” stocks with low volatility, such as AT&T, Philip Morris International, and T-Mobile. In contrast, he has exited positions in high-growth technology stocks like Nvidia, Microsoft, and Alphabet.

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Ultimately, McCullough advises investors to pay close attention to global bond and currency markets, which he believes provide clearer signals about the economy’s direction. As U.S. growth slows, these markets are likely to move ahead of equities, making them essential indicators for informed decision-making.

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