Why is everyone buying stocks now?

By "everyone" I mean every professional money manager who has missed part of this rally.

During the first half-hour of trading Friday on the Nasdaq, buying overwhelmed selling by about 30 to 1. Technical analysts commonly call any market "extreme" where advancing volume outnumbers declining volume by 10 to 1, so on Friday morning this market was genuinely off the charts.

Some of that was euphoria reflecting the good news on the unemployment numbers. The Street had been expecting unemployment to rise by 30,000 or so in the week, so the actual increase of just 17,000 was cause for celebration -- and justification for buying stocks.

But there's clearly more behind the market's behavior than a dose of good news. After all, stocks have moved up recently, even on days like June 5, when the news was stunningly bad. That day's report said manufacturing orders for April fell by 2.9%. That was far above the consensus projection of a 1.9% decline, and a big reversal from the 2.2% increase in orders during March.

Still, the Dow Jones Industrial Average climbed a little more than 2 points to record another close above the symbolic 9000 level on that day, and the Nasdaq Composite tacked on 11 points, or about 0.7%, as that index continued to lead the equity market. So what's going on?

The Lottery-Ticket Stage

The stock market has entered one of those "lottery ticket" periods that come at the closing stages of all big rallies. Calculations of risk and reward that might have restrained stock prices become irrelevant in such a market. And stock prices are driven higher by investors who buy because they fear they'll miss out on the big prize.

This kind of investor psychology makes the stock market extremely vulnerable to huge blowoff moves on the upside during lottery periods. And the sudden end to this psychology can leave investors just as vulnerable to big losses on the downside, when the market decides to correct or consolidate.

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