E Are Penny Stocks A Solution To Inflation?

TM Editors' Note: This article discusses penny stocks and/or microcaps. Such stocks are readily manipulated; do your own careful due diligence. 

This week, inflationary concerns are back once again. Yes, the same inflationary concerns that mysteriously went away after last week's week jobs data.

The same inflation that the Federal Reserve continues to suggest isn't a factor. While this is happening, the McDonald's (MCD) menu known for offering less expensive options to the masses is getting smaller. Once a Dollar Menu item, the price of a hashbrown right now is nearly $2. Is inflation a fear, or is it already happening?

McDonalds Dollar Menu

Thanks to these continued concerns popping up weekly, the stock market continues experiencing unreliable trends. Last week the S&P ETF (SPY) reached new all-time highs. This week, the "inflation friendly" Dow ETF (DIA) broke to another new all-time high. But looking at the stock market today, we see a much different tone. There's a sweeping market decline, with all majors sliding during premarket trading. Should this mark the end of the long-touted bull market? Is a true correction coming? While I won't go as far as sounding the alarm, it's this type of market psychology that continues to play a much bigger role as compared to fundamental trends. Trillions of dollars in stimulus have flooded the markets over the last year. 

Data from the Fed shows that a broad measure of the stock of dollars, known as M2, rose from $15.34 trillion at the start of 2020 to $18.72 trillion in September. This increase of $3.38 trillion equated to 18% of the total supply of dollars. Yes, that means that almost one in five dollars was created in 2020. As we know, more stimulus has been pumped in, and more could be on the horizon. 

Penny Stocks & Inflation

I've written on penny stocks many times in the past. Are they for everyone? As much as I would like to say anyone can learn how to trade them, some people can't grasp the idea of taking a profit. Is it easy to buy penny stocks? Definitely, but for some reason, novice traders have a hard time taking profit even if a stock is up 20% or more. The "what if" factor, as I'll call it, begins playing a role. Since these lower-priced stocks can jump so quickly, 20% becomes a "small profit," notwithstanding its market-beating gain. Do all penny stocks go on to record massive triple-digit gains? No, but even with that aside, on days broader markets are getting pummeled, your still likely to find a few stocks under $5 making big moves.

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Disclosure: I own shares of McDonald's (MCD).

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William K. 1 month ago Member's comment

Well written, and interesting as well. I had not though much about this sector of the market. The challenge in gaining from dealing with such stocks is that even a huge percentage of growth brings a smaller number of dollars of profit.

Unfortunately I don't see a simple way around that issue, except to own a million shares of the stock. And that might be difficult to sell when trying to take the profit.

Small Cap Reporter 3 weeks ago Author's comment

so far it looks like most of these mentioned have continued higher with the market's overall rebound.