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?

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.

Take Proteagenic Therapeutics Inc. (PTIX), for example. It was a breakout star on Monday when everything was getting sold into. This even includes the incredibly bullish Healthcare sector and its S&P ETF (XLV). While the sector ETF finish flat, shares of PTIX closed out the May 10th session up nearly 30%. This was also after the penny stock made a high of $4.89 during the session, which marked an intra-day move of 94%. Shares are once again on the move during the Tuesday morning pre-market session.

You've also got other health-related penny stocks like Cerecor (CERC) and Intec Pharma (NTEC) making early moves during the May 11th pre-market hours. While the latter has no apparent catalyst to pair with the move, Cerecor had some FDA-related headlines to reference. The FDA granted Fast Track Designation to the company's CERC-002 treatment. This is designed for hospitalized patients with COVID-19. This designation will allow for an expedited review of the drug to treat these conditions. It also presents an opportunity for Cerecor to have more interactions with the FDA review team during the development program. 

Penny Stocks Aren't All Fun And Games

Remember that just because these penny stocks have performed the way they have this week, it doesn't mean all penny stocks follow the same path. Take, for instance, Gevo Inc. (GEVO). it became a popular alternative energy stock to watch over the last few months. With the Biden Administration's stance on green energy and fossil fuel alternatives, companies like Gevor saw a spike in trading activity. Shares rallied from under $1 last November to highs of $15.57 this year. Since reaching those highs, however, it hasn't been the best stock on the list. In fact, as of Tuesday's premarket session, GEVO officially dropped back into penny stock territory, hitting lows of $4.54. Is more bleeding in the cards? That's yet to be seen, but with earnings coming this week, I'm sure the market will be focused on those results this coming Thursday.

You've also got former Reddit penny stocks like Zomedica (ZOM), which came to fame in late 2020 thanks to anticipation of a commercial product launch. The company build its TRUFORMA diagnostic platform and set out to begin selling it this year. Leading up to the formal commercialization announcement, shares of the penny stock managed to rally from under $0.10 last November to highs of $2.91 this year. Not only did Reddit play a role, but so did Cameo, an app that lets you purchase video shoutouts from celebrities. In this case, someone paid for Tiger King star Carole Baskin to talk about Zomedica and TRUFORMA. Needless to say, the hype has worn off, and shares are trading back below $1. While they haven't come close to retesting the $0.10 level, ZOM stock is down more than 70% from its 2021 highs.

Are Penny Stocks Immune To Inflation?

Back to the original thesis on inflation, I don't think penny stocks are necessarily impacted by inflation as much as they are their own hype and speculation. Sure, you'll see secular moves in things like commodities like oil, gas, and metals. But even with that as the case, not all penny stocks in those sectors will respond the same. There are always outliers, especially when it comes to cheap stocks. In today's market environment, it has come down to identifying opportunities early on. In the case of penny stocks, those have been presented almost daily.