Why Gun Stocks Misfired Today

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Shares of firearms and ammunition manufacturers Sturm, Ruger & Company (NYSE: RGR), Vista Outdoor (NYSE: VSTO), and Smith & Wesson Brands (NASDAQ: SWBI) surged in the first week of trading of the new year, but began losing strength yesterday. On Friday, they’re falling again. As of 2:30 p.m. EST, Ruger stock is down 8.2%, Vista is down 8.6%, and Smith & Wesson is down 9.6%.

As the calendar turned over and the Jan. 20 Inauguration Day approached, promising to put a Democrat into the White House again, investors in the firearms industry seem to have sharpened their focus on the prospect of presumed new gun regulation in Congress. Adding to the anxiety, by Wednesday it became clear that any such legislation would have an improved chance of passage in Congress, as the Senate majority also swung in the Democrats’ favor.

Ordinarily, you might think this would be bad news for stocks focused on guns and ammo, but in the real world, it often works like this: Gun customers see legislation on the horizon, and so they go out and buy guns and ammunition before they get banned (hint: they almost never get banned). This produces a sales spike and a bumper crop of profits for the gun stocks and, once the fear of regulation passes, the stocks go up.

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