In the last two years, gun stocks Sturm, Ruger & Company (NYSE: RGR ) and Smith & Wesson Holding Corp (NASDAQ: SWHC ) have both more than doubled the return of the S&P 500. Fears have never been higher concerning a potential Hillary Clinton presidency and the recent rise in high-profile mass shootings.

Gun enthusiast are afraid that the current climate will ultimately lead to new, restrictive gun laws. Unfortunately for gun stocks like RGR and SWHC, November will likely bring bad news no matter who is elected.

RGR and SWHC Hot Streak

Incredibly, the FBI recently reported a record 2,197,169 background checks for gun sales in July. That number broke the previous July record by nearly 600,000. July marks the fifteenth consecutive month of record sales.

Why are people buying so many guns? According to Mass Shooting Tracker, there were more people killed or wounded in shootings in June and July than in any other two months in the last four years.

If you combine that fact with the heated campaign rhetoric on guns from Hillary Clinton and other Democrats, gun enthusiasts are worried that Washington is about to crack down hard on gun sales. In the meantime, Americans are snatching up guns while they still have the chance.

RGR CEO Michael Fifer even acknowledged Clinton’s aggressive campaign rhetoric in RGR’s Q2 earnings call.

“Certainly, this is a unique time in our history, because for the first time ever, we have the nominee of a major political party, one with a very reasonable likelihood of winning the presidency… actively campaigning against the lawful commerce in arms,” Fifer said.

What President Clinton Would Mean for Gun Stocks

Fifer’s words seem scary. However, the fear that a Clinton presidency would bring about a ban on firearm sales seems a bit extreme. What exactly does Clinton say she’ll do?

According to her website, Clinton wants to “keep guns out of the hands of domestic abusers, other violent criminals, and the severely mentally ill.”

That actually doesn’t sound too bad. And assuming a Republican-controlled congress, it may be difficult to do even that much. So wouldn’t that be good news for gun stocks?

If no major restrictions are placed on gun sales, it’s certainly good long-term news for gun companies. On the other hand, it might not be good news for gun stocks like RGR and SWHC. Why? Once Americans see that they don’t have to be so afraid of a ban on guns, they will no longer be motivated to buy out of fear.

The state of California recently passed six new gun control laws. The laws limit magazine capacity, require background checks for ammunition purchases, restrict firearm lending and close a loophole that allowed the sale of banned guns with detachable magazines. What the laws don’t do is ban gun sales. Americans are guaranteed a right to bear arms by the Second Amendment.

California and other states are free to restrict gun sales in any way they want. However, banning them outright would be difficult to justify given the wording of the U.S. Constitution. Once again, the current climate of fear will ultimately result in two possible outcomes:

State gun laws will become so restrictive that gun sales will dramatically decrease. That’s bad news for RGR and SWHC. California and other states’ new gun laws will prove to be ineffective and will not have a significant impact on access to guns. Gun buyers will realize that their fears were unwarranted, and they will stop hoarding guns. Once again, that’s bad news for RGR and SWHC.

Record gun sales and extreme fear over the possibility of new gun regulations can’t be maintained forever. Unfortunately for gun stocks like RGR and SWHC, it’s hard to see either lasting too far past the November elections.

Mass fear often provides excellent trading opportunities in the stock market. If you’ve been in on the gun stock bull run the last couple of years, it’s probably a good idea to take your profits on SWHC and RGR soon. Once the election is over, gun buyers will no longer be as fearful of the outcome.

As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.

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