After a downbeat September, October too remained volatile for Wall Street. High oil and gas prices, still-high inflation, and the Fed’s occasional hawkish comments along with the resultant rise in bond yields kept the market under pressure.

Though October is historically upbeat, this year the month tricked investors. The S&P 500, the Dow Jones and the Nasdaq have lost 2.5%, 2.1% and 4.4% past month (as of October27, 2023) due to rising rate worries.

U.S. benchmark treasury yield started the month with 4.69%, reached a high of 4.98% on Oct 19 and then ended the month at 4.84%. Apart from higher rates, there was heightened geopolitical crisis due to the war between Israel and Gaza. This has sent oil prices higher.

Meanwhile, the U.S. GDP data for Q3 came in at upbeat. The United States witnessed a substantial economic growth in the third quarter of 2023, with the real gross domestic product (GDP) growing at an annual rate of 4.9%, beating the economists’ expectations of 4.7%.

Consumer spending was one of the main contributors to the U.S. GDP growth. The GDP increase marked the largest gain since the fourth quarter of 2021 (read: Consumer Spending Boosts U.S. Q3 GDP: ETFs to Buy).

Against such a backdrop, let’s take a look at the ETF areas that underperformed in October the most.

ETF Areas in Focus

Cannabis

AdvisorShares Pure US Cannabis ETF (MSOS Quick QuoteMSOS - Free Report) ) – Down 35.2%

Subversive Cannabis ETF ) – Down 34.5%

Cannabis stock prices have languished for an extended duration, which is a negative for investor portfolios. The primary factor contributing to this underperformance has been regulatory challenges. Plus, heavy cash outflows by cannabis firms and stiff competition have further worsened the situation.

Clean Energy

Invesco Solar ETF (TAN Quick QuoteTAN - Free Report) ) – Down 20.8%

Invesco WilderHill Clean Energy ETF (PBW Quick QuotePBW - Free Report) ) – Down 20.7%

Renewable energy stocks were heavily-hurt in recent months, significantly underperforming fossil fuel companies, as higher interest rates cast a pall over the sector. Solar companies have been facing capital crisis. Some market watchers believe that renewable groups’ business models are less-immune to a high inflation, high interest-rate world, as quoted on Financial Times

Genomics

Kelly CRISPR & Gene Editing Technology ETF ) – Down 20.5%

ARK Genomic Revolution ETF (ARKG Quick QuoteARKG - Free Report) ) – Down 20.5%

Genomics, being a high-growth area, fare ill in a high-rate environment. Gene therapy and editing could revolutionize health care, but the industry often faces funding crisis. Gene therapy and editing are still in the nascent stage, and their long-term efficacy is yet to be understood fully. Hence, in a volatile time like now made investors go against the genomics ETF investing.

Israel

iShares MSCI Israel ETF (EIS Quick QuoteEIS - Free Report) ) – Down 16.4%

VanEck Israel ETF (ISRA Quick QuoteISRA - Free Report) ) – Down 16.2%

The main stock market index in Israel (TA-125) fell 11.30% since the beginning of 2023. Israel stocks suffered due to its war against Gaza. The war started in early October. The shekel weakened to the lowest since 2016 against the dollar even after the Bank of Israel unveiled an unprecedented $45 billion program to defend the currency.

Biotech

Range Cancer Therapeutics ETF (CNCR Quick QuoteCNCR - Free Report) ) – Down 16.8%

ALPS Medical Breakthroughs ETF (SBIO Quick QuoteSBIO - Free Report) ) – Down 15.2%

Biotech stocks are high-growth in nature. High growth stocks underperform in a rising rate environment.  This explains why biotech industry got hammered hugely in October. The ongoing earnings season has also come in at mixed for the space. For example, AbbVie's (ABBV) third-quarter 2023 earnings and sales beat estimates. Though the company raised its EPS outlook for both 2023 and 2024, share price dives as some key drugs misses out on estimates. Some companies slumped despite beating on both lines as guidance underwhelmed.