Gun makers' stocks, which often rise after mass shootings, jump.

Gun makers' stocks, which often rise after mass shootings, jump.

After shootings, shares in gun manufacturers tend to go up because investors figure appeals for tighter gun laws will cause a jump in sales.

By Jason Karaian

• May 25, 2022
• Updated 10:38 a.m. ET

The share prices of gun and ammunition companies often rise after mass shootings, with investors anticipating a spike in sales ahead of calls for stricter gun laws. On Wednesday, the morning after a deadly shooting at an elementary school in Uvalde, Texas, prices for major gun stocks gained momentum in early trading, following a subdued start. An hour after the market opening, Smith & Wesson was up nearly 10 percent, Sturm Ruger rose about 4 percent and Vista Outdoor gained more than 8 percent.

Gun makers' shares have generally risen since President Biden's election, as they typically do under Democratic administrations, when calls for tougher gun control measures get more attention. On Tuesday, Mr. Biden declared that it was "time to turn this pain into action" and Democratic lawmakers cleared the way to force votes on legislation that would strengthen background checks for gun purchasers, which have previously been blocked by Republicans.

Gun sales rose sharply during the pandemic, setting new monthly records as some feared that the outbreak could lead to civil unrest. That wasn't necessarily a boon for some firearms companies, with Remington filing for bankruptcy in mid-2020 for a second time in two years, struggling to service its debt and pay hefty legal fees. In February, the families of nine Sandy Hook school shooting victims settled a lawsuit for $73 million with Remington, which made the AR-15-style rifle used in the 2012 massacre. It was one of the largest and most significant settlements to date, as federal immunity for gunmakers provides a strong shield from litigation.

Gun control advocates recently petitioned the Federal Trade Commission to investigate and regulate the firearms industry as it has for tobacco, claiming deceptive advertising practices. The state of New Jersey is pursuing a lawsuit against Smith & Wesson for the way it markets its products, seeking the release of internal documents.

The rise of "socially responsible" investing has put a spotlight on gun makers, which are often excluded from these portfolios. After Remington's latest bankruptcy, some of its assets were acquired by Vista Outdoor, which this month announced that it would split in two, separating the ammunition business from its camping, sports and outdoor equipment operations in the name of "enhanced strategic focus."

Given the article above, summarize in your words and explain what microeconomics principle the article demonstrate.

Note: Do not reference supply and demand as your concept, because it does not differentiate between Macro and Micro.