Insights 
VT 
The S&P 500 and Nasdaq are declining due to Nvidia shares falling, following a report about Alibaba’s new AI chip. The chip aims to replace Nvidia’s presence in China, with Alibaba shares rising on this news.
Chinese companies are focusing on developing their own AI chips due to past US restrictions. Although Nvidia is declining, the broader stock market is expected to respond more to upcoming US labour market data and Federal Reserve actions.
Immediate Opportunities and Trades
In the short-term, this development may lead to a pullback, particularly given the month-end and accompanying data risks.
The current weakness in Nvidia is creating immediate opportunities for traders. We are looking at buying put options on both Nvidia and the broader semiconductor ETF, SMH, to hedge against further downside. The sector has had a massive run in 2025, with the SOX index up over 45% year-to-date, making it vulnerable to a sharp correction on news like this.
Conversely, the Alibaba news is creating a compelling pairs trade. We are considering going long Chinese tech, perhaps through Alibaba shares or the KWEB ETF, while simultaneously shorting US semiconductors. The Hang Seng Tech Index has already quietly gained nearly 10% this month, suggesting that capital may be starting to rotate back into these beaten-down names.
This tech wobble is causing broader market anxiety ahead of a long weekend. The CBOE Volatility Index (VIX), often called the market’s “fear gauge,” has spiked from a low of 14 to over 17 in just the past two days. With implied volatility still relatively cheap from a historical perspective, now is a good time to buy protective puts on the S&P 500 (SPY) or Nasdaq-100 (QQQ).
The Bigger Economic Picture
The bigger issue remains next week’s U.S. labor market report and its impact on the Federal Reserve. Current consensus is for a non-farm payrolls number around 180,000, and any significant deviation will move markets. According to the CME FedWatch Tool, the odds of the Fed holding rates steady at its September meeting are at 70%, but a very strong jobs report could change that calculus quickly.
We’ve seen this pattern before, particularly when looking back at the tech leadership weakness in late 2021 which preceded the broader market decline of 2022. That period taught us that when market leaders falter, it can be an early warning sign for everyone else. For the coming weeks, we are using options to define our risk and are avoiding adding significant new long positions until we see how the employment data plays out.
