The outbreak of World War I in Europe forced the NYSE to shut its doors on July 31, 1914, after large numbers of foreign investors began selling their holdings in hopes of raising money for the war effort. All of the world’s financial markets followed suit and closed their doors by August 1.
By the end of November, however, American officials had decided to reopen the NYSE because it was thought that bond trading, albeit with a set of restrictions designed to safeguard the American economy, could help prevent the financial ruin of the belligerent countries by raising money for the war effort. Trading of stocks didn’t resume until December 12, 1914, when the Dow Jones Industrial Average (DJIA)—the most important of various stock indices used to gauge market performance—suffered its worst percentage drop (24.39 percent) since it was first published in 1896. This precipitous fall underlined the risky nature of business during the first months of the war, when nobody knew exactly how long the conflict would last or exactly what role the then-neutral U.S. would eventually end up playing.
Although the stock market would remain volatile–including a 40-percent drop in the DJIA from late 1916 to early 1917–World War I was a clear turning point in the realm of international finance. In its wake, New York would replace London as the top investment capital and the NYSE would become, for better or worse, the undisputed barometer of the world’s economies. The NYSE did not close its doors for any extended period of time again until the terrorist attacks in New York and Washington on September 11, 2001, when trading was suspended for three days.