What happened

Shares of gunsmith Smith & Wesson Brands (NASDAQ:SWBI) surged in Monday trading to close up an even 11% after the U.S. Supreme Court declined to review appeals challenging:  

  • Restricting the right to "open carry" firearms in Maryland, Massachusetts, and New Jersey.
  • A California handgun law.
  • Bans on the sale of certain semi-automatic firearms and large-capacity magazines in Massachusetts.
  • A federal law banning interstate handgun sales.
Gun and bullets on a copy of the U.S. Constitution.

Image source: Getty Images.

So what

"But wait!" you say. Aren't laws restricting firearms sale and use bad news for a gunmaker?

Well, you might think so. But perhaps perversely, the historical effect of laws aiming to restrict "gun rights" has been to increase interest in gun ownership. Maybe it's a simple matter of forbidden fruit tasting sweetest, but whenever gun owners (present or prospective) sense a tightening of gun restrictions is at hand, their instinct is often to rush to the store to buy more guns before that right is taken away.

Now what

Investors in gun stocks, well familiar with this effect, presumably took Monday's Supreme Court decisions as evidence that gun regulations are in the tightening phase of the tightening-loosening-tightening cycle. The logic would be that this latest tightening phase -- especially in an election year with the prospect of a Democrat winning the White House -- is going to act as a spur to gun sales, boosting sales, profits, and also stock prices for gun stocks like Smith & Wesson.

And for today at least, that appears to be precisely what's happening.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.