Welcome to CrushTheStreet.com’s Weekly Market Wrap-Up!
Our top news item of the week is the sustained decline of one of 2013’s hottest sectors, and clearly, the most controversial : firearms. Shares of the iconic gun manufacturer, Smith and Wesson, plummeted on Wednesday, dumping nearly 14% of valuation against the prior session. The overriding bearish sentiment was blamed on a poor earnings report and a forward-guidance that suggested that the erosion would not be abated anytime soon.
Smith & Wesson CEO, James Debney, offered little comfort to long-term investors and particularly those that entered late into the game, merely stating that inventories were high and blaming typical slow seasonality. However, seasonality was not a factor in the company’s first quarter result last year, when revenue was higher by 40 million dollars.
According to their press statement, Smith and Wesson expects net sales for the second quarter of fiscal year 2015 to fall between 100 to 110 million, well short of expectations from Wall Street analysts. As a result, the stock was punished, at one point going down negative 17% during intra-day trading.
The simple reality, as the popular online resource “24/7 Wall Street” points out, is that people are buying fewer guns. According to the Federal Bureau of Investigation, gun sales plummeted in the opening month of the year, with 1.66 million background checks issued for firearms as opposed to 2.5 million in January of 2013. After the Sandy Hook incident that occurred nearly two years ago, speculation ran rampant that the liberal Obama administration would severely crack down on 2nd Amendment rights, fueling an unprecedented surge in gun purchases, particularly semi-automatic rifles such as the AR-15 and the AK-47 variants. Such overtones led to both ammo and rifle shortages despite manufacturers pushing up production in response to the lift in demand.
However, that circumstance appears to have rebalanced itself, with gun industry experts noting early this year that inventory levels, even for highly demanded firearms, have returned to normal. Street pricing, which turned a hefty premium for most of 2013, has also come down as a response, with off-brand AR-15’s available for $500 to $600 throughout different retailers across the United States. Some Kalashnikov variants still maintain an element of sticker shock, although this has more to do with changes in import conditions than it does with actual production concerns.
With the stock price of both Smith and Wesson, and its competitor, Sturm Ruger, under pressure, it may be tempting to abandon this sector altogether. Lawrence Keane, spokesman for the National Shooting Sports Foundation, offers a cautionary note that while gun sales may be down in nominal terms, retailers have reported that the consumer base has grown, with 25% of sales over the past few years coming from first-time buyers, as well as a significant increase from purchases made by women. This suggests that any further political unrest or a catalyzing event could skyrocket gun sales yet again, potentially making the current volatility a lucrative buy-back opportunity.
In financial news, the U.S. equities market softened slightly on Thursday, with the benchmark S&P 500 index shedding nearly 3-and-a-half points and losing the psychological 2,000 point threshold. Concerns regarding sustained violence in Ukraine capped further gains in stocks, leading some money to spill over into the precious metals sector. Both gold and silver gained an average of nearly a half-percent against the prior session, while palladium marched up to 899 on the ask. However, better than expected U.S. GDP data also capped bullish enthusiasm in the metals complex. Finally, bitcoin managed to trade in a range just slightly above the 500 dollar level, against growing enthusiasm for the digital currency. On August 27th, Bankers Worst Fear reported that the residents of Dominica will each receive a bitcoin as part of “The Bitdrop” promotional campaign.