On Valentine’s Day 2018, 17 students aged between 14 and 17 were executed in a hailstorm of bullets at the Marjory Stoneman Douglas High School in Parkland, Florida.
The killer, 19-year-old ex-pupil Nikolas Cruz, was armed with 330 rounds of ammunition, an AR-15 assault rifle – a rifle that has been in production, albeit regularly re-engineered, since the Vietnam war – plus smoke grenades. Cruz has since been charged with 17 counts of premeditated murder and his behaviour inside Broward County Jail infirmary has been described as calm, though he remains on suicide watch.
The behaviour of gun stocks has been rather more volatile in contrast. Shares of Connecticut-based firearms maker Sturm Ruger were valued at $50.10 on 14 February. By 28 February, when lawmakers were urging President Trump to hike the age of consent for owning assault-type weapons, Ruger shares had sank almost 15% to $43.
Major US firearms retailer Dick’s Sporting Goods then announced it would stop selling assault-style rifles, on 1 March. Walmart, a big gun retailer, added to the debate with an announcement of a higher age restriction on ammo and guns.
Yet by the end of the first week of March Sturm Ruger shares had recovered and were trading at $51.35 – more than their mid-February pre-Florida massacre price.
How to explain this? First, mass shootings usually spark a firearms buying surge. Gun-buying consumers worry about the risk of new Federal legislation making it more difficult to buy in future. So there’s a sales and stock spike.
But in this case, there was already existing concern about gun sales sector-wide: American Outdoor Brands, formerly known as Smith & Wesson, reported a 33% revenues dip for the last quarter in February. Private equity-backed gun maker Remington also went into bankruptcy on 12 February just two days before the Parkland slaughter.
Sure enough, on 18 February Sturm Ruger confirmed 2017 net sales of $522.3m compared to $664.3m for 2016. By 28 February Ruger shares were trading at $43.
Yet within a week this price had re-fired back to more than $50. Part of this was down to news sensitivity around corporate earnings. However, the FBI produce a monthly report on firearms background checks, which also acts as a barometer for gun sales (though many gun sales are made without background checks).
FBI firearms numbers boost
February’s FBI numbers indicated firearms checks surged 4%. But checks for long guns, which include the type of assault rifle used in the Florida massacre, were up a massive 12.6%. (Some assault rifles are powerful enough to pierce thick walls.)
Valuations also took a blast of air from a meeting between President Trump and the boss of the National Rifle Association, Chris Cox. "I had,” said Cox on 2 March, “a great meeting tonight with @realDonaldTrump & @VP [Mike Pence]. We all want safe schools…and don't want gun control.”
The US Second Amendment right to bear arms is deeply embedded in the popular psyche (originally the Second Amendment banned alcohol and protected the right to own slaves).
The sense of entitlement doesn’t just stretch back to the founding fathers such as George Washington and Thomas Paine. It has been constantly updated and strengthened across all sectors of US society. In the 20th century, journalist and civil rights campaigner Ida B. Wells said a Winchester rifle “should have a place of honor in every black home, and it should be used for that protection which the law refuses to give”.
Wells was referring to the Klu Klux Klan which encouraged murder to suppress civil rights progress. To many Americans the Second Amendment is fundamental. In March 2018 any 18-year-old American can walk into a store and buy firearms while in 30 US states it remains legal for a child to own a shotgun.
US tolerance for the killing of school children remains high, despite recent events. On 14 December 2012, 20-year-old Adam Lanza shot dead his mother Nancy in the Connecticut town of Newtown, 60 miles from New York.
Dressed in black fatigues Lanza then drove to Newtown’s Sandy Hook Elementary School. He mowed down 20 children between the ages of six and seven as well as six adult teachers with a Bushmaster AR-15-style rival, similar to an M-16, killing 27 in total.
“In retrospect Sandy Hook marked the end of the US gun control debate,” tweeted Dan Hodges, a journalist for the Mail on Sunday on 19 June 2015 following a mass shooting at Charleston Emanuel African Methodist Episcopal Church. “Once America decided killing children was bearable, it [the debate about gun control] was over.”
Weaponising the argument
It would look politically inept not to move, even narrowly, on gun control following last month’s outrage. On 7 March Florida legislators passed a bill allowing school teachers to be armed – a highly Republican tilt – though the move was opposed by Democrats. Marjory Stoneman Douglas survivors meanwhile are organising themselves, getting behind hashtag #NeverAgain.
“We’ve never seen a group of victims and survivors come together so quickly and be so organised and so savvy,” Chris Allieri, a public relations expert from Mulberry and Astor, told the FT.
“BlackRock holds none of these firearms manufacturers in our active equity portfolios,” the asset manager said in a statement to Capital.com. But Blackrock, which has $6tn under management, admitted it held 0.01% of company assets via index funds.
Indexing the reasons
“When a client chooses an index that includes a firearms manufacturer, we are unable to sell those shares regardless of our view of the company.” What about an ethical-style index that strips out gun makers?
“We are exploring ideas for new funds, including index-based portfolios that exclude just firearms manufacturers and retailers,” BlackRock’s Ed Sweeney told Capital.com in a follow-up email. (BlackRock boss Larry Fink has consistently indicated since 2012 he wants less portfolio risk and a tightening on SRI issues.)
Share price follow-through
Nearly a month on, where does this leave share prices of firearms makers? Ruger shares, yes, are up. Vista Outdoor shares sold for nearly $20 a pop mid-Feb but as of 9 March they are down 19% at $16.16. There has been no share price reprieve, unlike Ruger, for Vista Outdoor – it has been downhill all the way.
American Outdoor Brands (AOB) shares were at almost $11 on 15 February but were down to $9 by 28 February, an 18% fall. But like Ruger, AOB shares have rallied; AOB shares are now at $10.60.
Back across the Atlantic BAE Systems, which controls ammunition operator Royal Ordnance, saw its shares dip in February but that was due to a flatter 2018 earnings forecast including currency headwinds plus a dip in the production of Eurofighter Typhoon jets.
Deals are off
Has anything changed substantially? Possibly. From Avis to United Airlines, US National Rifle Association member discounts have ended. But many public pension operators such as Vanguard and TIAA-CREF remain heavily invested in trackers – trackers mimic a broad index like the S&P 500 – and fund trustees have a legal responsibility to optimise returns.
Via their immersion in trackers BlackRock and Vanguard remain the two biggest investors in Sturm Ruger, still. But a tipping point may be coming. Just ask many Florida millennials and, rising up behind them, post-millennials. They’re digitally fluent, ethnically diverse and want change.
Not all will be progressives and generational influence is tricky to measure at the best of times. Mass shootings are a new normal. But something may – just – have shifted this time.