The U.S. trade deficit for November plunged 25%, the government reported today, propelling stocks, bonds and the dollar's value sharply higher in frenetic trading. The Dow Jones industrial average surged by nearly 40 points.
The trade announcement by the Commerce Department electrified Wall Street, giving traders some of the best news since the October stock market crash.
The Dow Jones industrial average, which had dropped 8.62 points Thursday, shot up more than 50 points in hectic trading as the market opened. It held around that level until the final half hour, when it slipped a bit to close up 39.96 points at 1,956.07. Volume was a healthy 197.94 million shares, following a volume of 140.57 million shares Thursday.
Broader Indexes Also Up
Broader market indexes also rose sharply. Stocks rising in price outnumbered falling issues by a little more than 5 to 1 on the New York Stock Exchange.
"It's explosive on the upside. The markets took off," said Robert O'Toole, manager of over-the-counter trading at Shearson Lehman Brothers Inc. in New York. "A lot of guys were gambling it was going to go the other way. They only had a 50-50 chance of being right."
The most dramatic immediate reaction was in the foreign-exchange markets, where brokers scrambled to buy dollars. In New York, the U.S. currency climbed to nearly 131 Japanese yen, up more than 4 yen from late Thursday. The dollar also advanced to nearly 1.69 West German marks, up from 1.63 late Thursday.
Best in 7 Months
The November trade deficit, $4.4 million smaller than October's record $17.6-billion shortfall, was the best trade performance in seven months, the Commerce Department reported.
Analysts credited recent declines in the value of the U.S. dollar, making American goods cheaper abroad and imports more expensive, for much of the improvement. The dollar is now worth about half of its 1985 value against Japanese and key European currencies.
For the Reagan Administration, long searching for an elusive turnabout in trade accounts, the report was "good news by any test," Commerce Secretary C. William Verity said.
The dollar surged in New York and on European markets, closing at 130 Japanese yen in London--up from 126.65 on Thursday.
Industrial Output Up
Other government reports today also held good news for financial markets. The Labor Department said wholesale prices fell 0.3% in December. The Federal Reserve, meantime, said output in the industrial sector rose 0.2% in December, the biggest increase since 1984. (Story, Page 2.)
"The financial markets couldn't have asked for a better set of data," said David Jones, senior economist for Aubrey G. Lanston & Co., a New York government securities dealer. "The chance of a recession in 1988 has been greatly lessened."
President Reagan, reading a statement before cameras at the White House before leaving for a medical checkup at Bethesda Naval Medical Center, hailed the trio of positive economic reports. "As I've been saying all along, the fundamentals in the United States economy remain sound," he said.
In contrast, the report last month of October's $17.6-billion trade gap triggered a 47-point drop in stock prices and sent the dollar plunging to 40-year lows.
9.4% Surge in Exports
Pacing the trade improvement was a 9.4% surge in exports to $23.8 billion, representing the largest overseas sales of U.S. goods in a single month. At the same time, imports fell by 6%, to $37.0 billion.
Although a modest decline in imports had been expected--they traditionally go down in November--the jump in exports appeared to catch most analysts pleasantly by surprise. It is the first time that exports have increased in November since 1979, Administration officials were quick to note.