Markets enter a critical week following Friday's tech sector volatility that saw AI-related stocks retreat despite the S&P 500 ($SPX) (SPY) achieving new highs through Thursday. The selloff was triggered by concerns over China's semiconductor ambitions, particularly reports that Alibaba (BABA) is developing its own AI chip, which sent Nvidia (NVDA) shares tumbling and pressured other AI infrastructure plays including AMD (AMD) and Taiwan Semiconductor (TSM). Meanwhile, a federal appeals court ruling declaring most Trump-era tariffs illegal adds another layer of uncertainty, with the case expected to reach the Supreme Court and potentially requiring tens of billions in reimbursements to importers.

This week begins with markets closed Monday for Labor Day, creating a compressed four-day trading period that culminates in Friday's crucial August jobs report, which is the final major employment data before the Fed's September meeting. 

Key earnings from enterprise software leaders Zscaler (ZS), Salesforce (CRM), and semiconductor giant Broadcom (AVGO) will test whether technology's leadership can withstand mounting China concerns and broader market rotation pressures.

Here are 5 things to watch this week in the Market.

AI Infrastructure Under China Pressure

The week's most significant development centers on mounting pressure facing AI infrastructure stocks following reports that Alibaba (BABA) is developing proprietary AI chips, highlighting China's accelerating efforts to achieve semiconductor independence. Friday's selloff in Nvidia (NVDA), AMD (AMD), and Taiwan Semiconductor (TSM) reflects growing investor concerns about potential market share erosion and reduced dependence on U.S. chip suppliers by Chinese technology giants. Thursday's Broadcom (AVGO) earnings will serve as a critical test for the semiconductor sector, with investors closely scrutinizing commentary about AI demand sustainability, competition from custom chips, and exposure to Chinese customers. The company's data center networking and AI accelerator businesses will be particularly important given recent volatility in the sector. Broadcom's results and guidance could either reinforce concerns about AI infrastructure headwinds or provide reassurance about the durability of current investment cycles, making this one of the week's most consequential earnings events.

Employment Data Before Fed Decision

Friday's August jobs report at 8:30am represents the final major employment release before the Federal Reserve's September 17-18 meeting, taking on heightened significance as policymakers weigh the timing and magnitude of potential rate cuts. Nonfarm payrolls, unemployment rate, and average hourly earnings will be scrutinized for evidence supporting or contradicting recent dovish Fed commentary about labor market softening. Thursday's ADP employment report and initial jobless claims will provide additional context leading into Friday's comprehensive data. The employment picture becomes even more important given Wednesday's JOLTS job openings report, which will offer insights into labor demand and potential hiring trends. Any significant deviation from expectations could substantially influence September Fed meeting odds and impact rate-sensitive sectors, particularly as markets have already positioned for policy adjustments based on recent economic data.

Enterprise Software Earnings Test

Tuesday's Zscaler (ZS) and Wednesday's Salesforce (CRM) earnings will provide crucial insights into enterprise software spending and cloud adoption trends amid ongoing questions about corporate IT budget priorities. Zscaler's results will offer perspective on cybersecurity demand and zero-trust network adoption, particularly important given increasing global cyber threats and regulatory compliance requirements. Salesforce's earnings will be closely watched for commentary on CRM software demand, AI integration progress, and customer spending patterns across different business segments. Both companies represent high-growth technology plays that have been sensitive to interest rate expectations and enterprise spending cycles, making their results particularly relevant following recent market volatility. The companies' guidance and commentary about customer behavior, deal pipeline, and spending prioritization will help determine whether enterprise software can maintain resilience amid broader economic uncertainties.

Manufacturing and Services Economic Pulse

Tuesday delivers a comprehensive view of manufacturing activity with the Manufacturing PMI at 9:45am and ISM Manufacturing PMI at 10:00am, providing timely insights into industrial conditions following recent mixed economic signals. Thursday's Services PMI and ISM Non-Manufacturing PMI will offer perspective on the larger services sector that drives most economic activity. These reports will be particularly important for assessing business confidence and spending intentions ahead of Friday's jobs report and the Fed's September meeting. The ISM prices components will provide additional insights into inflationary pressures at the business level, relevant for Fed policy considerations. The convergence of manufacturing and services data creates potential for significant market reactions if the reports collectively suggest strengthening or weakening business conditions, particularly given ongoing questions about economic momentum and the sustainability of recent growth trends.

Legal and Geopolitical Market Undercurrents

The federal appeals court ruling declaring most Trump-era tariffs illegal creates significant legal and economic uncertainty, with the case expected to reach the Supreme Court and potentially requiring tens of billions in reimbursements to importers. This development adds complexity to trade policy expectations and could influence sectors with significant international exposure or those previously benefiting from trade protection. Companies in steel, aluminum, solar, and other previously tariff-protected industries may face questions about competitive positioning and future policy support. The ruling also creates potential fiscal implications if large-scale reimbursements are required, possibly affecting government spending priorities and deficit calculations. Meanwhile, Spirit Airlines' second Chapter 11 bankruptcy filing within a year has boosted rival carriers like Frontier Airlines, highlighting ongoing consolidation pressures in the airline industry and creating potential opportunities for surviving carriers to gain market share and improve pricing power.

Best of luck this week and don't forget to check out my daily options article.