By Ed Carson

File photo source: Getty images

Dow Jones futures fell solidly early Tuesday, along with S&P 500 futures and Nasdaq futures, while Treasury yields rose after the Labor Day weekend. A U.S. appeals court ruled late Friday that most Trump tariffs are illegal.

The stock market rally last week was strong through Thursday, with the S&P 500 hitting fresh highs, but AI plays led a Friday retreat.

Nvidia stock retreated amid China concerns, exacerbated Friday by reports that Alibaba (BABA) is developing its own AI chip. AI-related plays, many of which shrugged off Nvidia earnings and flashed buy signals, came under pressure Friday. Those included Advanced Micro Devices (AMD), Taiwan Semiconductor Manufacturing (TSM) and GE Vernova (GEV).

While nothing like the DeepSeek sell-off from late January, China could be a cloud hanging over AI stocks, especially Nvidia.

Nvidia's pain was Alibaba stock's gain. Alibaba was Friday's IBD Stock Of The Day, gapping above a buy point.

Separately, Tesla (TSLA) broke out to start the week but reversed lower.

Dow Jones Futures Today

Dow Jones futures were 0.7% below fair value. S&P 500 futures retreated 0.9% and Nasdaq 100 futures declined 1.2%. Nvidia, a Dow Jones, S&P 500 and Nasdaq 100 titan, extended losses early Tuesday, along with other AI chip and related plays.

The 10-year Treasury yield rose several basis points to 4.29%, amid concerns that the U.S. Treasury might have to fund tariff revenue. The 30-year yield neared 5%.

Crude oil futures jumped nearly 3%.

Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.

Trump Tariffs Ruled Illegal

A federal appeals court ruled late Friday that most of President Donald Trump's tariffs are illegal, a big blow to his agenda. The ruling against Trump had been expected. The case will almost certainty go to the Supreme Court. In the meantime, the Trump tariffs remain in force.

Trump could probably replicate many of the struck-down tariffs using other authority.

So while the legal battle extends uncertainty for businesses around the globe, the end result may not be that different.

Still, the U.S. government might have to reimburse tens of billions of dollars to importers who paid the tariffs.

Meanwhile, late Friday, Spirit Airlines (FLYY) filed for Chapter 11 bankruptcy for the second time in a year. That boosted rival carriers, especially Frontier Airlines (ULCC).

Stock Market Rally

The stock market rally saw slim weekly losses on the major indexes thanks to Friday's Nvidia-led losses, after the S&P 500 hit a new high on Thursday.

The Dow Jones Industrial Average dipped 0.2% in last week's stock market trading. The S&P 500 index slipped 0.1%. The Nasdaq composite declined 0.2%. The small-cap Russell 2000 edged up 0.2% after setting an eight-month best Thursday.

Leading stocks showed strength until Friday's AI-led retreat. Financials and aerospace stocks fared better, along with some medicals.

The 10-year Treasury yield fell three basis points to 4.23%. Friday's July PCE inflation report was largely in line, but the August jobs report on Sept. 5 will be another test for Fed rate-cut expectations.

U.S. crude oil futures rose 0.55% to $64.01 a barrel last week.

ETFs

Among growth ETFs, the Innovator IBD 50 ETF (FFTY) climbed 1.7% last week. The iShares Expanded Tech-Software Sector ETF (IGV) rose 0.6%. The VanEck Vectors Semiconductor ETF (SMH) fell 1.1%, with Nvidia, Taiwan Semi, Broadcom and AMD huge holdings.

ARK Innovation ETF (ARKK) and ARK Genomics ETF (ARKG) both retreated 2%. Tesla stock is the No. 1 holding across ARK's ETFs.

SPDR S&P Metals & Mining ETF (XME) popped 2.75% last week. SPDR S&P Homebuilders ETF (XHB) slid 2.6%. The Energy Select SPDR ETF (XLE) gained 2.55% and the Health Care Select Sector SPDR Fund (XLV) slipped 0.5%. The Industrial Select Sector SPDR Fund (XLI) gave up 0.7%.

The Financial Select SPDR ETF (XLF) advanced 0.8%.

Alibaba AI Chip Adds To Nvidia China Fears

Nvidia beat quarterly views and guided slightly higher, not counting any China revenue from the H20 AI chip for the Chinese market. That could be a big upside, but Beijing has urged local companies to use other chips.

Alibaba is working on an AI chip to sub in for Nvdia's H20, The Wall Street Journal reported Friday. Meanwhile, China AI startup DeepSeek reportedly is using Huawei chips to train some AI models.

That could hurt Nvidia's China prospects, even if geopolitical issues are resolved. That could also affect AMD and its own China-specific AI chip. Taiwan Semiconductor makes Nvidia and AMD chips.

Separately, Marvell Technology (MRVL) dived 18.6% Friday following earnings, amid concerns about its AI prospects.

Nvidia stock fell 3.4% on Friday and AMD nearly 3%, both moving back toward the 10-week line. Taiwan Semi stock slumped 3.1%, below its 50-day. Broadcom (AVGO) sank 3.65%, but still rose slightly for the week with earnings due Sept. 4.

All four chip giants fell slightly early Tuesday.

AI-related energy plays such as GE Vernova and air conditioning stocks such as Comfort Systems (FIX) fell back Friday after flashing buy signals. Oracle (ORCL), which is becoming an AI infrastructure play, tumbled well below its 50-day line. These stocks edged lower before Tuesday's open.

For its part, Alibaba stock shot up 12.9% on Friday to 135, clearing a 127.93 entry within a deep base. BABA stock rose slightly early Tuesday.

No DeepSeek Redux So Far

While many AI stocks fell Friday, it's so far nothing like the DeepSeek sell-off that began in late January, coinciding with the broader Trump tariff sell-off. To be fair, DeepSeek fears took a little time to filter through the market.

However, there is a key difference. The January DeepSeek sell-off raised concerns — since waned — that long-term AI spending globally might need to be far less than expected. The Alibaba news, if true, seems more concentrated on Nvidia AI chip sales to China.

Tesla Stock

Tesla stock cleared a 348.98 handle buy point on Tuesday. But shares fell back for the week, down 1.8% to 333.86, largely on Friday's 3.5% loss. TSLA stock wiped out gains from an early entry back on Aug. 22. The buy point is still valid, though investors could look to Wednesday's high of 355.39 as a new, alternate buy point.

Shares fell nearly 2% early Tuesday, signaling a test of the 200-day line.

On Sept. 1, Tesla China cut the Model 3 LR RWD in China by RMB 10,000 ($1,402) to RMB 259,500 ($36,391). Meanwhile, Tesla began deliveries of the longer-wheelbase Model Y L on Tuesday.

Tesla China rivals XPeng (XPEV) and Nio (NIO) reported record August sales on Monday. Xiaomi (XIACY) reported strong sales as well. Li Auto (LI) sales fell while BYD (BYDDF) were flat vs. year earlier.

What To Do Now

Friday's losses were disappointing but the major indexes are right at highs. Nvidia is holding key support, while many AI plays simply gave up weekly gains.

Investors may have needed to cut some recent buys.

Consider how much exposure you have to the broader AI sector. Run your screens and have your watchlists up to date. Also have exit strategies ready.

Nvidia and GE Vernova stock are on IBD Leaderboard. Nvidia stock is on the IBD 50.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

Please follow Ed Carson on Threads at @edcarson1971 and X/Twitter at @IBD_ECarson for stock market updates and more.

YOU MIGHT ALSO LIKE:

Why This IBD Tool Simplifies The Search For Top Stocks

Catch The Next Big Winning Stock With MarketSurge

Want To Get Quick Profits And Avoid Big Losses? Try SwingTrader

How To Invest: Rules For When To Buy And Sell Stocks In Bull And Bear Markets

This article was first featured on Investor's business daily