Stocks are in 'melt-up' mode and have further to run before hitting a top as strong participation drives latest rally, Leuthold CIO says

• The stock market is in melt-up mode as a strengthening rally drives 24% year-to-date gain in the S&P 500.
• That's according to Leuthold Group's CIO Doug Ramsey, who doesn't see a top being made anytime soon.
• "The market probably deserves the benefit of the doubt because of its very strong internal momentum," Ramsey told Bloomberg.

A non-stop rally in stocks has led Leuthold Group's chief investment officer Doug Ramsey to believe the market has officially entered melt-up mode, according to a recent Bloomberg interview.

The S&P 500 hit another all-time-high on Monday and is up 24% year-to-date, and up more than 100% from its pandemic low reached on March 23, 2020. Much of the strength has come from a strong rebound in corporate earnings, driven by a healthy consumer.

Ramsey said the gains in stocks are likely to continue as he doesn't see a major top being made in the market anytime soon, pointing to positive upcoming year-end seasonality and strong upside participation in underlying stocks.

"It would be very rare for the market to put in a major top. Regardless of how expensive it might be, and regardless of how the Fed may be moving into a less-accommodative mode, history shows that generally there is some sort of narrowing that happens before you reach a definitive top in the market," Ramsey said.

In other words, rather than just mega-cap tech stocks like Microsoft and Alphabet driving the broader stock market averages higher, thousands of underlying stocks are participating in the recent rally, as evidenced by new highs in the value-line arithmetic composite, the Dow Jones Transportation Index, and the NYSE advance-decline line, all of which help measure market breadth.

Because of the strong underlying market participation, Ramsey is shying away from trying to hedge against the market by buying downside protection. "The market probably deserves the benefit of the doubt because of its very strong internal momentum," Ramsey said.

And increased liquidity will continue to be present for the stock market despite the Fed's upcoming tapering of its bond purchasing program, as M2 money supply continues to grow, according to Ramsey. "We're still growing the money supply at 13%. There's still excess liquidity available to flow into financial assets," Ramsey said.

If Ramsey's market perspective does play out, that should mean Fundstrat's year-end S&P 500 price target of 4,800 is within reach, as risk-on sentiment continues to impact stock prices.