Momentum Stocks in the 2025 Market Cycle: Sector Rotation and Earnings Resilience in Embedded Finance

The global economy in 2025 is navigating a phase of strategic expansion and diversification, marked by a shift toward globalized asset allocation and the integration of financial services into non-traditional ecosystems. This evolution is reshaping momentum strategies, which now prioritize sectors that align with both macroeconomic trends and technological innovation. Embedded finance-encompassing B2B credit, BNPL (Buy Now, Pay Later), and embedded insurance-has emerged as a defining feature of this cycle, driven by regulatory tailwinds, digital consumer behavior, and operational efficiency gains. This analysis explores how these sectors fit within historical sector rotation frameworks, their earnings resilience, and their implications for investors.

The Current Market Cycle and Sector Rotation

The 2025 global economy is in an expansionary phase characterized by cross-border investment and the diversification of risk across geographies and asset classes. Firms like Halberg & Rowe are capitalizing on this trend by entering new markets, such as Europe, with tailored investment products that reflect evolving investor needs according to Halberg & Rowe. Historically, expansion phases favor sectors with high economic sensitivity, such as Industrials, Consumer Discretionary, and Financials, which typically outperform by 5–8% during early-cycle growth according to market analysis. However, the 2025 cycle diverges in key ways: momentum is concentrated in embedded finance, a sector that straddles both financial and non-financial ecosystems.

Embedded finance is not a traditional sector but a structural shift in how financial services are delivered. For instance, B2B credit platforms in Germany are integrating trade credit into procurement workflows, enabling SMEs to access flexible working capital. Similarly, embedded insurance is expanding in mobility and travel, with real-time integration at points of sale boosting conversion rates. These innovations are less about macroeconomic cycles and more about operational efficiency and customer retention, distinguishing them from classic classifications.

Earnings Resilience in Embedded Finance

The earnings resilience of embedded finance sectors is underpinned by their ability to adapt to both economic and technological shifts. In Malaysia, the embedded finance market achieved a 33.4% CAGR between 2021 and 2025, with projections of $12 billion in value by 2030. This growth is driven by B2B credit and embedded insurance, which enhance transaction performance and credit quality. For example, B2B marketplaces embedding financing have reported 15–25% volume growth, as financing options reduce default friction and close more deals.

The sustainability of these trends is further reinforced by AI-driven underwriting and strategic partnerships between fintechs and traditional institutions. By 2030, the embedded B2B payments market could reach $16 trillion in transaction value, with platforms monetizing through commission take-rates, financing spreads, and value-added services like cash flow analytics. Even in regulated environments, such as BNPL in retail, consumer demand for deferred payments persists, despite increased scrutiny. This resilience reflects a broader shift toward embedded finance as a utility rather than a discretionary service.

Historical Context and Strategic Implications

Historically, momentum strategies during expansions have relied on indicators like moving averages and relative strength to identify sector rotations before major economic shifts. While embedded finance does not fit neatly into traditional frameworks, its performance mirrors mid-cycle sectors like Technology and Energy, which thrive on innovation and capital expenditure. For instance, the embedded finance market's projected 23.3% CAGR from 2025 to 2034 aligns with the high-growth trajectories of tech-driven sectors.

However, embedded finance's unique value proposition lies in its integration into non-financial platforms. Unlike traditional financial services, which are cyclical, embedded finance is event-driven. For example, embedded insurance generates revenue at the point of sale, making it less sensitive to macroeconomic downturns. Similarly, B2B credit platforms leverage supply chain dynamics rather than broad economic indicators, creating a hybrid model that combines elements of both cyclical and defensive strategies.

Risks and Opportunities

While the earnings resilience of embedded finance is compelling, investors must remain cautious. Regulatory scrutiny for BNPL models could temper growth in the short term. Additionally, the sector's reliance on technological infrastructure means cybersecurity and data privacy risks are heightened. However, these challenges also present opportunities for firms that prioritize compliance and innovation.

For investors, the key is to differentiate between embedded finance's structural advantages and its regulatory vulnerabilities. Sectors like B2B credit and embedded insurance, which are deeply integrated into operational workflows, are likely to outperform in the long term. Conversely, BNPL may face volatility as regulators balance consumer protection with innovation.

Conclusion

The 2025 market cycle is defined by a fusion of global diversification and embedded finance, with momentum strategies favoring sectors that enhance operational efficiency and customer retention. While historical sector rotation frameworks provide a useful lens, embedded finance's unique position at the intersection of financial and non-financial ecosystems demands a new approach. Investors who recognize this shift and prioritize earnings resilience-through AI-driven underwriting, regulatory adaptability, and cross-border partnerships-will be well-positioned to capitalize on the next phase of expansion.