Editor's note: You can still find ways to profit amid economic turmoil...

Many investors are hoping for a "soft landing" as a reprieve from the past few years of rampant market uncertainty. But according to Joel Litman – chief investment strategist for our corporate affiliate Altimetry – a recession could provide a much-needed economic reset that will lead to a slew of moneymaking opportunities down the road...

That's why Joel stresses it's critical for investors to prepare for a hard landing in order to avoid missing out on profits in the long term.

In today's Masters Series, originally from the October 30 issue of the free Altimetry Daily Authority e-letter, Joel discusses the current state of long-term yields... compares today's market chaos with the economy during the 1940s... and explains why a recession could be beneficial for investors in the long term...

A Recession Could Cure This Economy

By Joel Litman, chief investment strategist, Altimetry

Michael Hartnett had his eyes on 10-year bond yields...

Hartnett is a strategist at Bank of America (BAC). In his view, as long as long-term yields remained below 5%, the market was poised to more or less stay put.

This year, 10-year yields started out around 3.8%... already about as high as they'd been since right after the Great Recession.

As the Federal Reserve kept raising interest rates, the 10-year yield finally crossed the 5% threshold for the first time in 16 years in late October.

As a result, Hartnett expects a meaningful sell-off from the S&P 500. And this could offer a major boon for investors moving forward.

As we'll explain today, our economy needs a reset of some sort...

Investors have been set on the "soft landing" story for a while...

As we discussed in October, we don't expect it to play out the way they hoped... and that's good.

The market thinks it wants a controlled and moderate slowdown that doesn't push us into a recession. This scenario would be great for investors in the short term. Stocks wouldn't drop as much.

However, a soft landing won't be the end of the story. If the economy never shrinks, then the Fed is never going to lower interest rates.

Remember, interest rates act as a tax on the economy. Their primary purpose is to temper economic activity.

Fed Chair Jerome Powell has been clear that he's prepared to raise rates. He'll keep them high for as long as it takes to completely wipe out inflation.

And Bank of America's Hartnett agrees with the strategy. He views a recession as a necessary "reset" for the economy... one that will allow the Fed to cut interest rates when it's safe to do so.

That, in turn, will help power the next bull market.

A more aggressive rate adjustment could facilitate a genuine economic reset... as opposed to a temporary reprieve from falling stocks.

It will also position us for future growth...

This wouldn't be the first time this economic cycle has played out. Back in 1947, the central bank began hiking interest rates to combat soaring inflation.

That period's inflation was primarily spurred by the economic surge following World War II. Supply couldn't keep pace with demand as returning soldiers went on a spending spree and manufacturing returned to normal.

To curb inflation, the Fed took measures to hurt the economy... just like today. By 1949, it had pushed us into a recession.

The Dow Jones Industrial Average fell as much as 20% during the downturn. Then, from the recession lows in June 1949 through the end of 1950, it rose 41%.

A recession might be the most suitable remedy for the economy of the 2020s... the same way it was in the 1940s. Consumers are once again flush with cash, this time because of a lack of spending during the pandemic. We've also seen high inflation, high interest rates, and other Fed measures to tighten credit.

For us, the central issue isn't just whether interest rates and bond yields surpass 5%. The bigger point is that for those rates to come down sustainably, the market needs a more serious reset.

Brace yourself for some turbulence in the short term. And try not to panic... It will be good for the market over the long haul.

Regards,

Joel Litman

Editor's note: This isn't the only shift on the horizon right now. You see, a new financial crisis has quietly been developing in the stock market. Investors who aren't prepared for this rare market event will suffer devastating losses...

That's why Joel is joining forces with Chaikin Analytics founder Marc Chaikin for an online presentation on Wednesday to reveal a dead-simple way to take advantage of what's coming next. Learn more here...