Arborvitae dropping needles and cones
I have over arbs maybe 40 years old about 20 feet tall. They are not yellow or brown but are dropping needles and cones. I am watering twice a week in last week. Also saw tree squirrels n them eating cones. They look otherwise healthy but serious dropping.
Oakland County Michigan
Most evergreens have seasonal loss of needles (see link below):
But since you are also losing cones, you may be experiencing a stress response to drought as you suggest. Watering now may not fix a problem that already occurred, but your best bet is to keep up on the watering during any future periods of hot and dry weather. Make sure you are watering to reach to full root zone, and not just at the immediate base of the tree. For example, for a 4 foot wide Arborvitae, run a slow sprinkler that will saturate the soil 2 feet around the entire base.
I doubt the squirrels are doing any more than just taking a share of the cones for themselves. Usually when a tree has a large dropping of cones all at once, it is a tree physiological issue and not an animal issue.