Market Conditions Now Favor Large-Cap Stocks: Analyst

David Katz of Matrix Asset Advisors told CNBC’s “Squawk Box” that current market conditions favor large-cap stocks.

“If you look at first quarter earnings, the largest 50 stocks had an acceleration in their earnings whereas the rest of the market, especially the small and very small stocks, had a deceleration in earnings,” Katz said Tuesday. “Earnings momentum argues that large stocks, or mega-caps, are finally due for their day in the sun.”

Katz said he’s liked mega-caps for the last two years and continues to favor them despite what he sees as a temporary downturn in the first quarter of this year.

“It’s been a stealth rally,” Katz said. “The last six months of last year, (mega-caps) did quite well. In the first quarter, there was a significant speed bump where small and mid-sized (stocks) did a lot better. We think mega-caps are starting to do a little bit better again.”

He said seven of the ten largest stocks on the S&P 500 are flat or down for the year despite solid earnings and multiples of 12 to 15 times earnings.

“We think people are going to pay attention,” Katz said.

Jim Paulsen of Wells Capital Management said he expected small caps to outperform the market this year.

“Liquidity won’t dry up and it continues to benefit the more illiquid parts of the marketplace,” Paulsen said. “A lot of times the mega-caps start to out-perform when liquidity starts to become dearer. That just isn’t happening. Rates aren’t going up at the long-end very much and liquidity stays ample. I think that continues to force small cap leadership.”