Insurance, homebuilder ETFs remain as LA Wildfires Rage.
As firefighters continue to battle a series of deadly wildfires spreading across Southern California, the total economic toll and recovery will be years in the making.
Two industry sectors stand out, with property and business loss estimates ranging from $135 billion to $150 billion, or 10 times more than the 2023 Maui fires. Special effect Moving forward: Homebuilders and property insurers.
The wildfires, which have killed at least 24 people and ravaged 40,000 hectares of land and destroyed more than 12,000 buildings, have failed to significantly move the trade exchange needle.
Even against a backdrop of increased new construction activity in the greater Los Angeles area, the largest homebuilding ETFs are not reflecting signs of bullish investors.
3.3 billion dollars iShares US Home Construction ETF (ITB) It was up less than 1% in midday trading Monday, while the S&P 500 index was down 40 basis points.
It was a similar story for $2 billion. SPDR S&P Homebuilders ETF (XHB).
The two largest homebuilder exchange-traded funds are delivering strong performance in 2023, with ITB gaining 69% and XHB 60%. But that increased by 2% in ITB and 10% in XHB by 2024.
Both ETFs are down about 2% in the biggest market decline this year, and each has experienced outflows over the past five trading days, including during the Southern California wildfires.
Chris Chen, a wealth strategist at Insight Financial Strategists in Newton, Massachusetts, said that while the wildfires are graphic and heartbreaking, the overall property damage should be considered in context.
“From a macro point of view, this is still small compared to the 1.3 million housing units built across the country by 2024,” he said. “Therefore, while there may be a short-term improvement in the price of housebuilding EFAs, there should not be any long-term effects.”
That’s also true for insurance companies, which are financing much of the economic recovery, Chen added.
928 million dollars SPDR S&P Insurance ETF (KIE) and 740 million dollars iShares US Insurance ETF (IAK) It was essentially flat over the past five trading days.
“Insurance companies have to pay for claims on tens of thousands of units, but they have reserves to pay for such events, so the impact on earnings is limited,” he said. “Furthermore, insurance companies will re-insure them if the claim exceeds the accumulated amount.”