To The Moon

On January 7, 2025, a wildfire broke out in the Los Angeles area of California, US, and it is still ongoing. As of January 15, the fire has burned an area of over 164.3 square kilometers.

More than 90,000 people in Los Angeles have been evacuated. Some institutions have raised their loss estimates for the Los Angeles fire to between $135 billion and $150 billion.

Abiel Reinhart, an economist at JPMorgan Chase, believes that the economic losses from this wildfire are estimated to be around $250 billion, surpassing the losses caused by Hurricane Katrina in 2005.

Tens of thousands of residents have been displaced and are in need of food, shelter, emergency medical supplies, mental health counseling, and even the purchase of new homes. Many businesses have also suffered severe damage to their operating environments and assets.

This article summarizes the short-term impact of the fire on some industries and specific companies, and also tracks the stock price fluctuations of some listed companies.

1. Directly hit some industries and companies

1.1 The fire has further exacerbated the local housing market fluctuations.

On one hand, some real estate companies have suffered direct losses:

• $Essex Property(ESS)$ As a real estate investment trust (REIT) with a large amount of commercial and residential properties in California, its stock price fell by 2.5% on Jan. 8 and dropped nearly 6% within a week.

• $AvalonBay Communities(AVB)$ : A REIT with over 80,000 apartment units, its stock price fell by 5% between Jan. 6 and 8. It slightly recovered on January 10 but still did not return to the pre-fire level.

 On the other hand, the fire has stimulated a significant increase in housing demand, leading to a sharp rise in local rent prices and some real estate stocks to rise

Public information indicates that the median rent for a one-bedroom apartment in Los Angeles has exceeded $2,000, with some furnished houses listed at a monthly rent of $29,500, an increase of nearly 86% compared to the highest price in September 2024.

The fire has destroyed over 12,000 buildings, resulting in a substantial decrease in housing supply. This has intensified the housing shortage issue in California, especially in Los Angeles. A 2023 report pointed out that California is facing a shortage of 3.5 million housing units. LA aims to build nearly 500,000 new housing units by 2029. However, with many people rebuilding simultaneously after the fire, costs are likely to rise, and the overall pace of housing construction is expected to slow down.

Affected by the fire and supply-demand dynamics, the stock prices of housing developers such as $Toll Brothers(TOL)$ , $Lennar(LEN)$ , $D.R. Horton(DHI)$ , and $KB Home(KBH)$ have all risen during this period.

Data since from Jan 7th

1.2 The Los Angeles fire hit the insurance industry hard.

According to Goldman Sachs' estimates, the insurance losses caused by this wildfire could reach to $30 billion. If losses not covered by insurance are included, it is highly likely to exceed $40 billion. $Allstate(ALL)$ , $Chubb(CB)$ , $American International Group Inc(AIG)$ , and $Travelers(TRV)$ are among the insurers with the largest risk exposure.

• Allstate (ALL.US): Holds $792 million in direct premiums. Its stock price plummeted significantly during the fire, falling over 8% intraday on January 10.

• Chubb (CB.US): As an insurer focusing on high-net-worth policies, it has a relatively high risk exposure in the Los Angeles area. Its stock price fell by more than 5.4% in early trading on January 10.

• Travelers (TRV.US): Holds $805 million in direct premiums. Its stock price dropped nearly 4.5% in early trading on January 10.

• Mercury Global (MCY.US): Holds $839 million in direct premiums and is one of the largest publicly traded companies with exposure to California homeowners' insurance policies. The fire led to a significant drop in its stock price, which fell over 20% intraday on January 10.

• Reinsurance companies: Arch Capital Group (ACGL) also saw its stock price affected, falling over 2.5% intraday on January 10.

1.3 Retail companies got hit

• $Target(TGT)$ : Has 66 stores in the Los Angeles wildfire-affected area, accounting for 3.3% of its total stores, making it one of the retailers most affected by the wildfire.

• $Restoration Hardware(RH)$ : As a luxury furniture retailer, it has 4 stores in the area, representing 5% of its total stores.

• $AutoZone(AZO)$ : Has 85 stores in the wildfire area, accounting for 1.3% of its total stores.

• $Costco(COST)$ : Has 14 stores in the affected area, accounting for 2.3% of its total stores.

• $Williams-Sonoma(WSM)$ : Has 12 stores in the wildfire area, accounting for 2.3% of its total stores.

• $Best Buy(BBY)$ : Has 20 stores in the area, accounting for 2.1% of its total stores.

• At the same time, affected by the Los Angeles wildfire and strong winds, $Amazon.com(AMZN)$ has had to urgently close multiple warehouses or reject up to 90% of deliveries, leading to logistics delays and a surge in order cancellations and returns. On the day of the wildfire, January 7, its stock price fell by 2.42%.

1.4 Hollywood's film and TV industry suffers a major blow.

The wildfire has led to the suspension of multiple series being filmed in Los Angeles. The annual Hollywood award season's many events have been postponed, with the Critics' Choice Awards ceremony being rescheduled for two weeks later, on the 26th. The nomination list for the 97th Academy Awards in 2025 has also been delayed.

Approximately 680 thousand people working in the film, music, and related industries reside in the LA. This fire has directly impacted their income. According to AFP, the film and entertainment industry brings in $115 billion in revenue to LA each year.

Due to the impact on multiple filming locations in LA, the stock prices of Disney and Warner Bros. have seen a noticeable decline during the wildfire:

• $Walt Disney(DIS)$ : Its Universal Studios Hollywood and the shopping complex Universal CityWalk closed on January 8, affecting its tourism and entertainment business revenue. $DIS dropped over 1.7% intraday on Jan. 10

• $Warner Bros. Discovery(WBD)$ : The Warner Bros. Studio Hollywood tour was suspended and refunds were offered to booked visitors. The production of multiple films and TV series was interrupted, such as "Grey's Anatomy" and "ER". $WBD dropped over 5.5% intraday on Jan. 8

1.5 Some companies' finances are severely hit.

• $Edison(EIX)$ : Its California subsidiary is facing multiple lawsuits for allegedly causing one of the most severe fires in Los Angeles County history. $EIX has plummeted by 28% since January.

• $Peapack Gladstone(PGC)$ : A utility stock serving northern California, its stock fell by more than 10% during the fire. The company had previously filed for bankruptcy due to wildfire liability issues, and this fire has again raised concerns about its operational safety and legal responsibilities.

2. Which industries or companies may benefit?

2.1 Construction and engineering companies

$Fluor(FLR)$ : As a large construction and engineering company, its stock price may rise due to participation in post-wildfire reconstruction efforts.

Kiewit Corporation: Also a construction and engineering company, its expertise in infrastructure construction and home repair makes it a strong participant in reconstruction work.

2.2 Power equipment and energy solution companies

$Generac(GNRC)$ : The company's stock price rose by 1.7% after the wildfire. Generac is known for its power generation equipment and energy storage solutions. Demand for products like home backup generators typically increases during natural disasters. With power outages caused by wildfire, the demand for reliable power solutions from individuals and businesses has surged, driving up its stock price.

2.3 Home improvement retailers

$Home Depot(HD)$ : As a home improvement retailer, its stock price may rise due to the significant demand for building materials and home supplies from residents and businesses for reconstruction after the wildfire.

$Lowe's(LOW)$ : Similar to Home Depot, Lowes is a home improvement retail giant. It also has huge business opportunities in the post-wildfire reconstruction market, and its stock price may rise accordingly.

2.4 Health sector

$UnitedHealth(UNH)$ : Health issues triggered by the fire, such as respiratory diseases and burn treatment, will increase the demand for medical services and equipment. The business volume of related pharmaceutical companies may increase in the short term. For example, UnitedHealth Group rose significantly during the wildfire, with an intraday increase of over 5% on January 13.

In summary, the Los Angeles wildfire has had a significant negative impact on multiple industries and listed companies. At the same time, the disaster will further negatively impact the job market and economic growth.

Job reduction?

• Goldman Sachs estimates that the fire may reduce the US employment increase in January by 15,000 to 25,000 jobs.

• Morgan Stanley analysts also expect that the US new employment in January will be reduced by 20,000 to 40,000 due to the fire.

Economic growth slowdown?

• Goldman Sachs' economists estimate that this wildfire will drag down the US economic growth rate in the first quarter of 2025 by about 0.2 percentage points. However, they believe that this wildfire will not increase the number of unemployment insurance claims.

• JPMorgan Chase economist Abiel Reinhart still believes that the short-term impact of this wildfire on national GDP growth, employment, and inflation will be minimal.

Despite this, economists still believe that this wildfire is unlikely to disrupt the overall strong growth momentum of the US, but it will exert moderate pressure on the US national economy in the short term. We also hope the affected people in the US can get through this difficult time as soon as possible.

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