The devastating wildfires in Southern California continue to rage on, leaving thousands of homes and businesses destroyed and at least 10 people dead.
Investors are beginning to calibrate the toll of the deadly blaze, which could cost up to $50 billion in economic damages, according to JPMorgan. Accuweather’s latest estimate was even more startling: The firm now anticipates $150 billion in damages.
Insurance stocks with exposure to California plummeted today. Allstate sank 5.61%, Travelers Company dropped 4.26%, and American International Group lost 1.27%.
The logic is pretty obvious: With billions in damage to some of the wealthiest neighborhoods in the country, insurance companies are going to have to shell out some serious cash. Yet some insurers have more exposure to California than others—Allstate has the largest share (6%) of California’s home insurance market, according to JPMorgan. And roughly 80% of insurer Mercury General’s premiums came from California in 2024, which is why the stock nosedived 19.88% today.
Utility stocks whose businesses are based in California also tumbled. Edison International, which owns the utility operator Southern California Edison, which serves LA, sank 6.49%. Northern California utility Pacific Gas and Electric Company (PG&E) dropped 10.81%.
Keep in mind: Not only do utility companies have to cut power during the wildfires, but they can be liable for damages if their power lines contributed to the spread of fires. PG&E was forced to file for bankruptcy in 2019 partially because of the $30 billion in legal claims for its role in previous wildfires, while shares of Hawaiian Electric plummeted following payouts for damages due to its role in the devastating August 2023 fires in Maui. However, there is no evidence at this time that any utility companies contributed to the fires.
Someone’s got to rebuild
On the flipside, homebuilder stocks such as Toll Brothers, KB Home, Lennar Corp., and PulteGroup all gained today. Investors expect demand for homebuilding across the region to soar once rebuilding efforts begin after the blaze is finally contained.
Making sense of market moves
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Until the smoke clears, it's hard to know exactly how much damage was done, precisely how much insurance companies will be on the hook for, or how much homebuilders will really benefit in the months ahead. Today’s market moves are a kneejerk reaction that investors may want to steer clear of.—LB
If you’d like to donate to relief efforts for those affected by wildfires, GoFundMe.org has started a 2025 Wildfire Relief Fund, as well as a hub of verified GoFundMe pages related specifically to the wildfires in California.