Ghoulish Wall Street Speculators Pour Money Into Gun Companies

CREDIT: AP Photo/Steve Ueckert

Even before President Obama began explaining a slate of executive actions to tighten background checks for gun buyers on Tuesday morning, Wall Street speculators delivered a late Christmas present to gun manufacturers.

Stocks in Smith & Wesson and competitor Sturm Ruger leapt dramatically in morning trading as investors flocked to the firms, anticipating that gun sales will spike in response to the modest tightening of background check rules.

Smith & Wesson’s stock went up more than 12 percent in the first half of the day. Sturm Ruger also leapt 7.4 percent, according to the New York Post. One analyst expects Ruger’s stock to push even higher, to $70 from its current $66.

While the manufacturers thrived, other firms in the gun business didn’t. Stock in the ammunition maker Olin Corporation fell by almost 2 percent. Outdoor goods chains Cabela’s and Sportsman’s Warehouse were up very slightly, but more or less flat.

The deviation in performance between retailer and manufacturer stocks may just be market noise, but could also reflect the nature of the reforms Obama announced at the White House. The centerpiece of the package requires vendors that sell guns on the internet or at gun shows to comply with the background check laws that apply to traditional over-the-counter gun sales. The administration hopes that pushing such sales into the background check system and making the sellers themselves accountable for conducting the checks will make it harder for people with murderous intentions to evade the rules, potentially increasing operating costs for vendors.

The market’s behavior is logical, considering the clockwork relationship between any federal gun policy change and demand for firearms. Sales almost always bounce higher upon any discussion of strengthening regulations, and often leap after particularly bloody massacres make the news even in the absence of actual gun control crackdowns from Washington.

Obama’s policies are premised upon extending the existing background check system to the wilder corners of the gun marketplace, rather than on enacting any new barriers to purchase for people who are supposed to be allowed to buy guns. The actions won’t take a gun away from anyone who has one, or deprive anyone who can pass a background check from buying one.

It’s not that stock pickers expected something more heavy-handed. It’s that they know the consumption cycle of American gun owners, and saw a chance to cash in from the administration’s announcement.

For evidence of the power and reliability of the same purchasing pattern that stock pickers are anticipating by pushing money into gun companies today, look no further than 2015. Sturm Ruger stock was up almost 70 percent in the first three-quarters of the year alone.

Smith & Wesson stock saw an 80 percent rise in the same period. That would have been good enough to rank it as the second best-performing stock of the period behind Netflix, if the gunmaker were listed on the S&P 500.