North River Wealth - 3Q 2025 Market Recap

Overall, the third quarter underscored a broad-based rally across asset classes, with risk sentiment improving and investors positioning for a potentially softer landing in the global economy heading into year-end.

Global equity markets extended their momentum in the third quarter of 2025, led by strong gains across both U.S. and international stocks. The S&P 500 climbed 8.1% for the quarter, bringing its year-to-date return to 14.8%, as investors embraced a resilient economy, moderating inflation, and ongoing corporate earnings strength. Small-cap stocks, represented by the Russell 2000, outperformed their large-cap counterparts with a 12.4% quarterly surge, narrowing the performance gap and signaling renewed optimism for more economically sensitive companies on the heels or potentially lower interest rates.

International equities also delivered impressive results. Developed markets, as measured by the MSCI EAFE Index, rose 4.8% in Q3 and are now up a remarkable 25.1% year-to-date benefiting from currency tailwinds, stabilizing energy prices, and stronger than expected growth in Europe and Japan. Emerging markets continued to shine, gaining 10.6% for the quarter and 27.5% year-to-date, fueled by a rebound in China’s tech and consumer sectors and sustained strength across Latin America.

In fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index advanced 2% in the third quarter, lifting its year-to-date return to 6.1%. Bond markets found support as inflation data trended lower and investors grew more confident that the Federal Reserve would continue to lower interest rates.

Source: Blackrock

The Fed Cuts Rates. More to Come?

After months of waiting, the Fed finally gave the economy a little nudge by cutting interest rates a quarter of a point. That might not sound like much, but it’s a big deal and a sign like loosening your belt after Thanksgiving dinner. The new rate sits between 4.00% and 4.25%, and Fed leaders hinted there are two more cuts on the horizon this year (which would bring the range down to 3.5% to 3.75%).

Why did they do it? The job market has started showing cracks (thanks AI). The latest job report showed a material slowdown in young workers, recent grads, and minorities are having a tougher time finding jobs. The national unemployment rate ticked up to 4.3%, the highest reading since 2021. Fed Chair Jerome Powell admitted the labor market is now the main concern, though inflation (still hovering near 3%) isn’t off their radar either. In short, they’re trying to cool prices without freezing jobs.

Markets cheered the move, but the celebration was short-lived. Investors worry the Fed may be stingier with cuts in 2026 than they’d like. Translation: we might get a sugar rush now, but there’s no guarantee of dessert later.

Why Have International Stocks Done So Well This Year?

While U.S. investors have been busy debating AI stocks and Fed drama, international markets have quietly stolen the show. International and Emerging Market stocks are up nearly 30% this year, beating the S&P 500 by about 10% on the calendar year. 

The secret sauce? A weaker U.S. dollar. When the dollar falls, overseas companies look more valuable compared to their American peers. When you factor in better central bank management in some emerging countries and steady government stimulus abroad, there could be a strong tailwind for stocks outside the US.

Even though international stocks lagged U.S. markets for much of the last decade, they still play an important role in a portfolio. Different countries grow at different times, and when the U.S. slows down, overseas markets can pick up the slack. Adding international exposure helps smooth returns, reduce risk, and makes sure your investments aren’t relying on just one economy to carry the return burden.

M&A is Back in Style

Big companies are shopping again, and they’re buying in bulk. 

Global mergers and acquisitions (M&A) topped $1 trillion last quarter, only the second time in history that’s happened. There were some monster deals on the quarter: like Union Pacific buying Norfolk Southern for $80 billion, Electronic Arts going private in a $55 billion buyout, Palo Alto Networks snagging CyberArk for $25 billion, and Keurig Dr. Pepper getting JDE Peet’s for $18 billion.

Why the surge? 

After a couple of quiet years, stable and potentially falling interest rates and companies stockpiling cash have pushed CEOs off the sidelines. 

Interestingly, while the size of deals has exploded, the actual number of deals hasn’t which means it’s mostly the big fish making moves, while smaller companies are still cautious. 

Authored by Stephen Blahovec and Michael Rausch of North River Wealth Advisors.  We are an independent, fee-only financial planning and investment management firm located in Pittsburgh, PA servicing clients locally and across the country.  To learn more, contact us here.

This content is developed by North River Wealth Advisors from sources believed to be providing accurate information. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.