Gunmakers' shares jump after Orlando nightclub massacre

With gun ownership in the U.S. again under scrutiny following the Orlando massacre, there's another sobering fact to consider: the high-flying fortunes of gunmakers.

The investment returns on Smith & Wesson (SWHC) and Sturm, Ruger (RGR) shares have far exceeded the that of the S&P 500 during the past five years, with the stocks frequently getting a bump after a tragedy such as the early Sunday attack at an Orlando nightclub that killed 50 people. Shares of Smith & Wesson and Sturm, Ruger rose as much as 11.6 percent and 9.6 percent in early trading on Monday, respectively.

The uptick highlights how the cycle of mass shootings and subsequent calls for stricter oversight of firearms drives up gun manufacturers' market value. President Obama has called for tighter gun laws, which prompted one Wall Street investor earlier this year to call him "the best gun salesman on the planet."

Since 2011, shares of Smith & Wesson have increased more than 600 percent, while Sturm, Ruger has returned more than 200 percent. The S&P 500 index has increased just 61 percent during the same period.

The rise in gun sales following a mass shooting appears to be rooted in two motivating factors: Americans want to feel safer in the days following an attack, prompting some to acquire firearms. Then there's the idea of "loss aversion," an economic theory that describes how people would rather avoid loss rather than take a chance on gaining something new.

In other words, some Americans may be afraid of losing the current status quo when it comes to gun laws. The potential to gain something else -- such as fewer mass shootings -- simply isn't as appealing as keeping current gun ownership laws intact. Loss aversion may also prompt some consumers to act, either by expressing their fears to lawmakers or buying more firearms.

In the end, it's clear that Americans are acting on gun violence, but not the way that anti-gun violence advocates would hope for. Smith & Wesson said in March that its firearms division boosted sales by 56.4 percent, while Sturm, Ruger said its first-quarter firearms revenue jumped 26 percent.

"[W]e obviously had some tragic events," said Smith & Wesson CEO P. James Debney in explaining the company's strong holiday sales at a March investor conference held by investment bank UBS. "There was a terrorism... firearms did find their way back into the world of politics, talking about increasing legislation gun control. So those three factors combined, no doubt, spurred on the consumer into a very strong buying period for sure."

In a public address after the massacre, Obama said attack is "a further reminder of how easy it is for someone to get their hands on a weapon that lets them shoot people in a school, or in a house of worship, or a movie theater, or in a nightclub."

While Obama didn't spell out what regulatory efforts he might push for, it's clear that Wall Street is predicting the cycle of gun-buying will start again.