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An artificial intelligence-driven shakeout in the heavyweight technology sector is set to keep stock investors on edge in the coming week while a barrage of ‌data could shift focus to the health of the economy.A deepening rout among software stocks has ‌commanded Wall Street's attention this week, as investors ‍worried about the extent to which AI would upend business models throughout the industry. Further weakness in the tech sector, which holds massive weights in the major ⁠US equity indexes, dragged the benchmark S&P 500 lower, ⁠erasing its gains for 2026.Below the surface, investors have been encouraged about a rotation from tech to other parts of ‍the market that underperformed for most of the bull market that began more than three years ago. While tech has struggled, energy, consumer staples and industrials have shined so far this year."Rotation is the dominant theme this year and continues to be as we see these old-economy sectors and stocks really get some love," said Angelo Kourkafas, senior global investment strategist at Edward Jones. "At the same time, the bar of expectations seems to be so high for tech that no matter what companies report, it seems like the natural inclination from investors is to take some profits."The tech sector has ‌slid more than 12% since it peaked for the year in late October. Over that period, most of the other 11 S&P 500 sectors have posted gains, including three with double-digit percentage rises.But the overall S&P 500 has fallen over 1% in that time. With the tech ‍sector still accounting for about one-third ⁠of the weight in the S&P ‌500, investors fear the index will struggle if tech continues to falter."A market can absorb a prolonged rotation with large sector winners without obvious index-level stress for quite some time," Jim Reid, head of macro and thematic research at Deutsche Bank, said in a note. "However, the longer and deeper the selloff in a dominant sector becomes, the harder it can be for the broader index to withstand the drag."Stress is centring on software, with the S&P 500 software and services index tumbling 17% in a little over a week. Fears about AI disruption were compounded by disappointing earnings reports including from software giant Microsoft .The fallout for software underscores how investors are increasingly trying to determine winners and losers from AI."Before it was, AI lifted all ships," said Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments. "Now there are concerns that this massive acceleration in the technology space could cause ​other businesses to not see the kind of ‌growth rate they did before."The coming week will see reports in the software industry from AppLovin and Datadog. Results are also due from high-profile companies including Coca-Cola, Cisco Systems and McDonald's ⁠as fourth-quarter earnings season winds down.Monthly reports on employment and consumer prices will be released after both were pushed back slightly due to the recently ended three-day government shutdown. January's nonfarm payrolls report, out on Wednesday, is expected to show an increase of 70,000 jobs, according to a Reuters poll. Investors are trying to assess whether weakening in the labour market has tapered off. While the Federal Reserve cited stabilisation in the jobs market as it held interest rates steady last month, a survey on Thursday showed layoffs announced by US employers surged ​in January.Meanwhile, inflation remains "somewhat elevated" in the view of the Fed, with the January consumer price index due on Friday offering the latest insight into such trends. With the Fed describing diminished risks to both inflation and employment, markets are expecting the central bank to hold off on further interest rate cuts until its June meeting. By that point, President Donald Trump's newly nominated Fed chair, Kevin Warsh, could be in charge.After the central bank cut rates at the end of last year, Fed fund futures have continued to price in roughly two further quarter-percentage-point cuts by December, expectations that generally held in the wake of the announcement of Warsh's nomination late last month."Rate expectations have been remarkably stable over the last couple of weeks," Kourkafas said. "We'll ⁠see if any either weakness in the labour market data or any surprising cool down in inflation accelerates a bit the timeline for when the market thinks the next rate cut may be delivered." 

A spate of inflation data confronts US stock investors in the coming week as markets grapple with fresh uncertainty over tariffs and government bond yields, while equities hover at lofty valuations. The benchmark S&P 500 index closed at a record high on Thursday despite an uneven start to September, which has been the worst month for stocks on average over the past 35 years. Stocks were pulling back on Friday after the monthly US employment report showed job growth weakened in August."September has been known to see a wearing down of the sentiment picture," said Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments. At the same time, he said, "stocks aren't pricing in a lot of risks right now. They look fully valued."The monthly US consumer price index on Thursday highlights next week's economic releases, with investors focused on signals from the inflation data about the prospects for interest rate cuts and the fallout from tariffs on prices. Following Federal Reserve Chair Jerome Powell's remarks late last month that flagged rising risks to employment, markets have been widely expecting the central bank to lower rates for the first time in nine months at its September 16-17 meeting.Investors bet on even more accelerated easing after the weak jobs report.Fed Funds futures were baking in a 90% chance of a quarter-point rate cut at the meeting, and a roughly 10% chance of a heftier half-percentage point cut, LSEG data as of Friday afternoon showed.Only a CPI number that comes in "egregiously higher" than estimates could dent assumptions of imminent monetary policy easing, said Art Hogan, chief market strategist at B Riley Wealth.About 70 basis points of easing, or nearly three standard cuts, are projected by December, according to the futures data.Recently, "the prospect of the Fed cutting has been the overwhelming factor driving equity sentiment to be more positive," Miskin said. "And so if that reverses, then it could be problematic for equities."Along with CPI, a Wednesday report on producer prices could also reveal impacts from import tariffs. Last month's PPI data showed US producer prices increased by the most in three years in July as the costs of goods and services surged. Tariffs and their economic implications were the main risk facing markets earlier this year, but other factors such as questions over Fed independence and caution about the artificial intelligence trade have been more prominent recently.The issue returned to the fore this week after a US appeals court ruled that most of President Donald Trump's tariffs are illegal. While the Trump administration has asked the US Supreme Court to hear a bid to preserve the sweeping tariffs, the ruling injected fresh uncertainty for markets."It felt as though the fog of trade war was clearing, and now we're just back into the thick of it," Hogan said. "And that doesn't help corporate America make decisions, consumers make decisions, and investors make decisions."The potential of lost tariff revenue exacerbating the US fiscal deficit was one factor investors said may have driven long-dated US government debt yields sharply higher at the start of the week, moves that also followed big jumps in yields in the UK and other regions. While long-dated yields globally have since calmed, their spikes were cited as contributing to stock weakness initially during the week.The 30-year US Treasury yield this week hit 5% for the first time in over a month. That yield level has been "problematic" for risk appetite over the past few years, said Adam Turnquist, chief technical strategist for LPL Financial. The long-bond yield was last around 4.78%, with yields falling broadly on Friday after the jobs data.The S&P 500 was up about 10% so far in 2025, helped recently by a solid second-quarter earnings season. The S&P 500's price-to-earnings ratio climbed to 22.4 times, based on earnings estimates for the next 12 months, a valuation well above its long-term average of 15.9, according to LSEG Datastream."Investors face ongoing threats from trade and tariff unknowns as well as potential economic releases that could ultimately challenge elevated stock valuations," Anthony Saglimbene, chief market strategist at Ameriprise Financial, wrote in a commentary."That said, investors have been navigating those dynamics for months, and stocks have continued to grind higher."