The market did not reopen until December. Never before had the
New York Stock Exchange been closed for such an extended period, nor
has it since. Emergency trades were permitted, but only by approval of a
special committee and only at prices at or above the last trade before the
exchange closed. Even then, the trading prohibition was observed in the
breach as illegal trades were made outside the exchange (on the curb) at
prices that continued to decline through October. Unofficially, by au-
tumn, prices were said to be 15 to 20 percent below the July closing.
It is ironic that the only extended period during which the New York
Stock Exchange was closed occurred when the United States was not yet
at war or in any degree of financial or economic distress. In fact, when the
exchange was closed, traders realized that the United States would be a
strong economic beneficiary of the European conflict. Once investors re-
alized that America was going to make the munitions and provide raw
materials to the belligerents, public interest in stocks soared.
By the time the exchange reopened on December 12, prices were ris-
ing rapidly. The Dow Industrials finished the historic Saturday session
about 5 percent higher than the closing prices on the previous July. The
rally continued, and 1915 records the best single-year increase in the his-
tory of the Dow Industrials, as stocks rose a record 82 percent. Stocks con-
tinued to rise in 1916 and hit their peak in November, with prices more
than twice the level they were when the war had started more than two
years earlier. But then stocks settled back about 10 percent when the
United States formally entered the war on April 16, 1917, and fell another
10 percent through November 1918, when the Armistice was signed.
The message of the great boom of 1915 was not lost on traders a
generation later. When World War II erupted, investors took their cue
from what happened at the beginning of the previous world war. When
Great Britain declared war on Germany on September 3, 1939, the rise
was so explosive that the Tokyo Stock Exchange was forced to close
early. When the market opened in New York, a buying panic erupted.
The Dow Industrials gained over 7 percent, and even the European stock
exchanges were firm when trading reopened.
The enthusiasm that followed the onset of World War II quickly
faded. President Roosevelt was determined not to let corporations earn
easy profits as they had in World War I. These profits had been a source
of public criticism as Americans felt that the war costs were not being
borne equally as its young men died overseas while corporations earned
record income. An excess profits tax enacted by Congress during World
War II removed the wartime premium that investors had expected from
the conflict.
232 PART 3 How the Economic Environment Impacts Stocks