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Mass Shootings And Gun Stocks: A Real Trend?

Summary

Gun manufacturer stocks soar every time there is a mass shooting.

After a mass shooting, public opinion and liberals push for more gun control throughout the country.

Gun control would take time to influence consumers and no meaningful gun legislation has been passed in recent times.

The Las Vegas and Sutherland Springs shootings increased Sturm Ruger and American Outdoor stock prices.

People buy more guns in fear of future gun control and boost investor confidence in the gun manufacturers.

Eventually, this trend will disappear as the public realizes that gun control is not actually imminent, even if Congress yells about it.

There seems to be a strong correlation in US stock markets between domestic mass shootings and increases in the stock prices of major gun manufacturers. Analyzing the two most recent and publicized mass shootings, in Las Vegas and in Sutherland Springs, gives a better understanding as to why this trend exists and almost always holds true.

To capture the actual change in the markets, we look at the top two publicly traded gun manufacturers in the United States: Sturm Ruger and American Outdoor Brands Corporation. These companies do not outwardly support mass shootings, of course, but benefit when these tragedies occur. The chart below shows the increases for the companies after the two shootings. (Oct 2nd and Nov 6th measured).

Company

% Change (Las Vegas Shooting)*

% Change (Sutherland Springs Shooting)*

Sturm Ruger (RGR)

1.6%

2.9%

American Outdoor (AOBC)

3.0%

1.2%

*Yahoo! Finance

After the two shootings, the stocks rose even with a call for more regulation. Investors confidence in these stocks rise because they believe that gun consumers are spurred to buy more guns, not less guns, after a tragic mass shooting. It follows that gun owners and gun rights supporters buy more guns after a shooting because they fear an increase of gun regulation in the near future. They should, then, buy more guns and ammunition now before the regulations are actually implemented.

Investors that believe this about the gun owners of America can therefore profit greatly if they can predict when these mass shootings will happen and when there will be outcry for gun regulation in the public and in Congress. Profiting off of such a tragedy should have moral implications for investors in these companies even though actually predicting these shootings is practically impossible (unless there is some great conspiracy). While I cannot speak on the morality of the situation, the underlying assumptions for this logic can be challenged, especially with the environment of today’s politics.

Since 2012, when the infamous Aurora and Sandy Hook shootings happened, Democrats and liberals have urged for and put forth legislation that would better regulate who can get guns and what type of guns the public has available to it. I understand why people would go buy more guns because they believe it will be harder to attain them in the future, however, it never seems to get harder to get those guns.

From Aurora and Sandy Hook through Orlando and San Bernardino and now to Las Vegas and Sutherland Springs, stronger regulations have not materialized. It is just as easy for a deranged person to buy a gun and plan a mass shooting. It makes it surprising then that these spikes in the stock prices still occur after every mass shooting. Overtime, the public will likely become better at predicting when actual gun legislation could pass through.

Now more than ever people are paying more attention to politics around the country. People that would rarely tune into the national conversation now are more interested or feel that the political situations are more impactful and affect their lives more often. Trump is a big proponent of this continued national political conversation. As people are more in tuned with the politics of the nation, the public should begin realizing that outcry after a mass shooting is just an outcry. It’s been happening for decades now and much more in recent years.

The other main driving force for gun regulation is where on the political spectrum Congress and the Executive branch are. Right now, the House, the Senate, and the President are all Republicans and all supporters of the 2nd amendment and free guns. While political conversation can scare the public into buying more guns and bolstering gun manufacturers, this trend should not last long since gun regulation does not seem imminent at all.

Gun regulation does not happen overnight. Congress will take weeks if not months to debate, edit, and vote on any gun legislation. These assumptions that investors make based on public action seem faulty because the public acts on faulty assumptions themselves. There is no need to go buy as many guns as possible right after a shooting in fear of gun regulation. Investors should be wary of these gun stocks and their mass shooting rises because they are all built on false assumptions.

The public assumes Congress will quickly pass gun regulation in the aftermath of a mass shooting. There are two wrong assumptions. Congress has not passed significant gun regulation in recent years even with an increase in number and magnitude of mass shootings and Congress will not pass any legislation quickly. I would warn investors that this logic will crumble overtime with more shootings and no legislative regulation to follow. If this logic among gun consumers fails and they realize that gun supply will not be immediately affected by regulation, the entire trend of mass shootings and stock rises will be built on nothing. Demand will smoothen out how it does over regular periods of time (without mass shootings) and give no advantage to investors who attempted to take advantage of the short spike in prices. A look at prices shortly after the spikes shows that prices for Sturm Ruger and American Outdoor decline back to normal prices for the stock.

Regardless of the ethical implications of monetizing and earning off of mass shootings, investors should be wary of price increases based on public opinion that is driven by false assumptions. Public opinion itself is a fragile and ever changing position that is difficult to base investments off of. When the public opinion is based on assumptions that the public can easily figure out are false, then the tides can change even more quickly. Perhaps investors will realize before the public that the trend is not sustainable and unless any real regulation changes are made (unlikely for at least the time Republicans are in control), will probably fail to be a trend in the near future.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.