A bull market is loosely defined as one where the average stock is advancing. One area of the market that is often overlooked is microcaps. Important behavioural characteristics can be gleaned from studying relatively illiquid assets of each asset class. In the case of equities microcaps are the most illiquid. Anyway, problems in equity markets often first show up in microcaps due to their relative illiquidity. Now if the equity market was genuinely in trouble then microcaps should have struggled to move higher over the last couple of weeks. Yet, as per the microcap ETF “IWC” they are a mere 2% away from their multi-week high. What do valuations look like? With an average price/book of 1.08x they are hardly demanding by any stretch of a rational man’s valuation.
Comforting behaviour for the bulls no doubt!
