Although not a widely-utilized indicator, we like to look at the number of firearm background checks conducted by the NICS every month to gauge geopolitical uncertainty and volatility within the US. In uncertain times, firearm background checks tend to increase, as individuals increasingly acquire the means to protect themselves in a worst-case scenario. On the contrary, when times are ‘good’, background checks tend to decline. An additional factor that impacts background checks is the outlook on firearms legislation. When the populous fears that they may not be able to purchase certain firearms in the future, they will step up purchases in the short term to ‘stock up’. At the end of June, the Supreme Court ruled against the state of New York in regards to carry laws, which could help to expand demand for firearms, at least in that part of the country. Click here to learn more about Bespoke’s premium stock market research service.
In the month of July, firearm background checks declined by 6.5% sequentially and by 16.6% year over year continuing a recent trend of sharp declines. While checks are down, it followed a period of surging demand in 2020 as geopolitical unrest ran rampant throughout the US (BLM protests, claims of election fraud, COVID lockdowns, etc.). Nonetheless, background checks have declined by 33.9% on a two-year stack.
However, background checks are still in a longer-term uptrend. At 2.4 million, July’s background checks rank in the 16.2% of all months since NICS began reporting this data in 1998, and outside of late 2019 and into early 2021, there were only a few months that the number of checks was higher. Still, they are down 48.8% from the all-time high in March 2021. This may be because demand was pulled forward, but it could also be due to a more normalized domestic situation.
Through July, the 22.4% YTD decline in background checks in July versus December has actually been smaller than average. Background checks in July are practically always lower than in December, and the only year where that wasn’t the case was in 2020 when the country was gripped by riots in cities nationwide. Going back to 2000, background checks in July were typically more than a third (-33.8%) lower than in December. Click here to learn more about Bespoke’s premium stock market research service.
There are two publicly traded stocks directly exposed to these trends: Sturm Ruger (RGR) and Smith & Wesson (SWBI). The monthly performance of these two stocks tends to be highly correlated to trailing twelve-month NCIS background checks, as this is a clear read into the demand picture for these two companies. Just like background checks in general, both stocks are still in sustained downtrends. Click here to learn more about Bespoke’s premium stock market research service.