Why are gun stocks tumbling?
It's unclear what's triggering the recent plunge in shares of Smith & Wesson and Sturm Ruger. We may be seeing a correction after a runup around the presidential election.
Gun stocks are seeing the post-election blues.
Shares of Smith & Wesson (SWHC) and Sturm Ruger & Co. (RGR) recovered slightly Tuesday from some pretty steep declines over the last week. Smith & Wesson's stock price finally turned up by 4% Tuesday after sliding 13% over two trading days. Sturm Ruger rose less than 1% after suffering a 17% drop in the last week.
It looks like these stocks are correcting to levels seen before the November presidential elections. Investors jumped into these stocks as the election approached, figuring they would rise as shoppers stampeded into gun stores. And that did happen: Gun dealers made a record number of background-check requests on Black Friday, with 154,873 requests going to the FBI's call centers.
No one totals the actual number of guns sold, but those background-check requests are a good sign that firearms were flying out the doors.
But as the Motley Fool's Sean Williams points out, gun orders tend to return to normal levels after the elections are over, and "investors realize that they've bid shares up far beyond the gun makers' potential."
Some gun buyers are fearing a crackdown on firearms by President Obama, who suggested in one of the presidential debates that he was in favor of reintroducing an assault weapons ban. The National Rifle Association is fanning those fears, featuring a commentary on its site from CEO Wayne LaPierre saying that "an anti-gun Supreme Court, a U.N. Arms Trade Treaty, and a sweeping gun ban aren't just a possibility in a second Obama term. They're a near certainty."
Investors were speculating all day Monday about why gun stocks were down. "Ironically, the gun plays are quickly turning into falling knives," wrote one trader on Twitter. Another said that Sturm Ruger is "doing what it always does, runs like crazy then corrects very hard -- good poster child for why chasing is stupid." Still others said the correction was overblown, and that gun stocks would recover soon.
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