US EQUITIES RALLY ON BETTER THAN EXPECTED ADP EMPLOYMENT REPORT, PERCEPTION THAT STRESS TESTS WILL BE WELL TOLERATED BY BANKS. FINANCIALS AND ENERGIES LEAD RALLY.

US EQUITIES rose to their highest levels of 2009, with the major market indices erasing losses for the year, as equity buyers maintained the week’s buoyant mood supported by a surprisingly soft report on the loss of jobs in the United States. The ADP Employment report, a measure of US private sector jobs, showed a loss of 491,000 jobs (March figures were also revised down to 702 K from near 740K). Expectations had been for another reading of over 700,000. The lower number joined recent US indicators in the housing and industrial sectors in supporting the notion that the global recession may be reaching a bottom and that the unprecedented levels of capital being hurled at the markets may be finding some footholds to begin the process of reinvigorating the global economy.

The ADP number supported additional gains in financials, as evidenced by the sector posting some of the strongest gains today, as a number of reports suggested that many of the financial institutions had fared well in the government stress tests scheduled to be released on Friday. Citigroup, Wells Fargo, and Bank of America all posted double digit gains after announcing their expected capital needs. Bank of America was dragged up in sympathy with the sector, posting a nearly 15% gain despite a report stating that the government has asked the bank to come up with $34 billion in new capital (triple the amount expected). Overall, the sector seems poised to have lower capital additions that previously thought.

Energy companies were the second best performing equity sector today, after crude oil prices rose to 5 month high spurred by a bullish inventory report and positive recovery sentiment. Home builders were the weakest performers today after negative earnings and a report stating that nearly a quarter of US homeowners owe more than their properties are worth.

Technically, June Dow futures continue higher toward a resistance target of 8514. As one can imagine, the market appears to be getting near an overbought range and should undertake a pullback to fill in a range gap back to 8319. Key level of support for June Dow futures sets in at 8066.