Gun stocks have been soaring this week following the news that background checks for gun buyers jumped 75% in May. Background checks have been increasing for the last 13 consecutive months. Lake Street Capital Markets described more recent strength in background checks as “unprecedented, according to Bloomberg. The firm expects major demand drivers for gun sales to remain in place through the fall.
Background checks drive gun stocks
Background checks for both repeat buyers and first-time gun owners were up 75% year over year last month on an adjusted basis. May marked the third consecutive month with such massive growth. Background checks increased 80% in March and 69% in April. The number of checks increased significantly from January and February, when they were up 19% and 17%, respectively.
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Lake Street analyst Mark Smith said in a note that May's increase in background checks was probably due to "unfilled demand from Covid, recent buying due to civil unrest and continued and perhaps heightened buying due to the upcoming election and potential for increased regulation following the election." He expects gun buying related to the upcoming election and possibility for increased regulation to drive continued strength in demand through the fall.
Gun stocks pulled back today after two days of gains on the news about the background checks. Sturm Ruger stock climbed to its highest level since before President Trump was elected, while Smith & Wesson shares were on track for a 19-month high, according to MarketWatch.
Driving weapon sales
Analysts have said the regulatory environment is one of the largest drivers of gun demand, which drives gun stocks. Worries about regulations being tightened have often driven an uptick in gun sales. Demand for weapons fell significantly while Trump has been in office as worries about tighter regulations waned.
This year has brought multiple drivers for gun stocks. Aside from concerns about Democratic candidate Joe Biden entering the White House, civil unrest following the death of George Floyd in police custody is also driving gun sales. Rioting and looting have resulted in new waves of violence, causing some people to feel like they need a gun to protect themselves from the unrest. Worries about a prolonging of the COVID-19 pandemic have also driven healthy demand for guns and gun stocks.
Data from the National Instant Criminal Background Check System reveals that nearly 3.1 million people applied for a background check for a weapon purchase last month. Over the last five months, more than 15.25 million background checks for gun purchases have been completed. In the same five months a year ago, there were nearly 11.55 million background checks.
The number of background checks in a month has topped 3 million two times already this year. The only other time background checks surpassed 3 million was in December 2015, the month of the mass shooting in San Bernardino, Calif. that killed 14 and wounded 17.