Original | Odaily Planet Daily (@OdailyChina)
Author | Qin Xiaofeng (@QinXiaofeng 888 )
On Friday, June 5, U.S. stocks experienced the most intense single-day pullback so far in 2026.
The Nasdaq Composite Index plummeted 4.18%, closing at 25,709.43 points, marking its largest single-day drop since April 2025. The S&P 500 fell 2.64% to 7,383.74 points, ending its record nine-week winning streak. The Dow Jones Industrial Average dropped 695.15 points (1.35%) to 50,866.78 points. The Philadelphia Semiconductor Index plunged over 10%, with market capitalization evaporating by approximately $1.3 trillion in a single day, led by declines in core AI stocks such as Nvidia, Broadcom, Micron, and Marvell.
Instantly, the question of "Have U.S. stocks peaked?" loomed in the mind of every investor. Odaily Planet Daily will conduct a rigorous analysis combining recent data and historical comparisons: Are current U.S. stock valuations too high? Is this pullback a healthy correction or a trend reversal? Where are the future driving factors?
I. Panorama of the June 5th Plunge: A Data-Driven "Perfect Storm"
The Non-Farm Payrolls (NFP) report released on Friday evening was the immediate trigger for this plunge.
The U.S. Department of Labor's May NFP data showed an addition of 172,000 jobs, almost double the market expectation of 88,000, and significantly higher than April's 115,000. April's job figures were already above expectations. March's job data was revised upward by 29,000, and April's was revised upward by 64,000. Job growth over the past three months reached its strongest level in two years. This indicates a systematic underestimation of the U.S. employment situation in prior data, enough to fuel market concerns about an overheating economy.
The strong employment data pushed up inflation expectations, with the market anticipating the Federal Reserve could raise interest rates as early as October this year. Following the data release, U.S. Treasuries were sold off. The 10-year Treasury yield rose 5.8 basis points to 4.531%, and the more policy-sensitive 2-year Treasury yield jumped over 7 basis points in a single day to 4.1%.
The jump in bond yields hit technology stocks, which are high-valuation, high-growth assets and are most sensitive to interest rates, the hardest.
Broadcom's strong earnings the day before failed to surpass the market's extremely high expectations for its AI custom chip business guidance, triggering a chain reaction. Nvidia fell over 6%, Micron dropped 13.3%, Marvell fell 16.7%, and AMD declined 10.9%. Concentrated profit-taking in the semiconductor sector, coupled with doubts about the sustainability of AI capital expenditures, created an avalanche effect. Reports that Meta would add hundreds of billions in AI investment failed to reverse the sector's downturn.
Trading volume expanded, and the VIX fear index surged 37% to 21.15, indicating a rapid spread of risk-averse sentiment. Bitcoin simultaneously fell below $60,000, and gold and crude oil also adjusted, with risk assets under comprehensive pressure. However, not all sectors fell: defensive sectors like utilities, healthcare, and consumer staples closed higher, with "old blue chips" like Johnson & Johnson and Coca-Cola attracting safe-haven funds. This suggests the market was not in a state of full-blown panic but rather a targeted adjustment in high-valuation sectors.
On a weekly basis, the S&P 500 ended its nine-week winning streak, with the Nasdaq logging a weekly loss of 4.7%, its worst in over a year. The Dow showed relative resilience, falling only 0.3% for the week, reflecting signs of sector rotation.
"This was an extreme manifestation of 'good news is bad news,'" Morgan Stanley's chief U.S. equity strategist, Michael Wilson, noted in a post-market report. "Strong employment data means the Fed's tightening shackles will be fastened tighter, directly shaking the only pillar supporting the high valuations of U.S. stocks—the expectation of imminent rate cuts."
II. The AI Myth Fades: Dominoes of a Crowded Trade
If the NFP data was the trigger, then the accumulated bubble and fragility within the AI sector itself were the highly explosive powder keg.
Over the past 18 months, AI was the sole narrative driving U.S. stocks to successive new highs. Nvidia's market cap once surpassed $5 trillion, accounting for over 7% of the S&P 500 index's weighting. At one point, the entire AI ecosystem-related stocks approached 40% of the S&P 500's total market cap.
However, entering Q2 2026, cracks began to appear in this faith.
Recent supply chain surveys revealed that several cloud service providers were reportedly cutting back on some orders for Nvidia's next-generation Blackwell Ultra chips due to excessive previous stockpiling and the much slower-than-expected monetization speed of enterprise AI applications. Nvidia's earnings report at the end of May, while still impressive, showed its revenue growth guidance had slowed for the third consecutive quarter, and there were signs of a potential decline in gross margins.
The extremely crowded long positions in tech giants rapidly evolved into a stampede to close positions under the impact of interest rate shocks. When the NFP data triggered soaring rates, the attractiveness of holding these high-duration, high-valuation growth stocks plummeted abruptly. Their marginal buyers—leverage-dependent quantitative funds and retail investors—were the first to collapse, triggering a chain reaction.
"The AI trade has shifted from FOMO (fear of missing out) to fear of being caught." Renowned value investor and GMO co-founder Jeremy Grantham has long warned about excessive AI valuations. He has compared the current situation to the eve of the 2000 internet bubble, noting that revenues for many AI companies may struggle to support their current high valuations.
III. Valuation and Historical Comparison: Have U.S. Stocks Reached a Bubble Peak?
The reason this pullback sparked widespread discussion about "whether the market has peaked" lies in its occurrence against a backdrop of multiple high valuation and sentiment indicators converging.
First, valuations are at historically high levels. Prior to the June 5th correction, the S&P 500's Cyclically Adjusted Price-to-Earnings ratio (CAPE, Shiller P/E) was around 39.5, ranking third highest after the 2000 internet bubble and the post-2021 pandemic easing period, significantly above levels preceding the 2007 financial crisis. The forward P/E also reached around 22.5, far above the long-term historical average of 15.8. The "Buffett Indicator"—the ratio of total U.S. stock market capitalization to U.S. GDP—briefly touched a high of 237% in late May, far exceeding the range Buffett himself defined as "significantly overvalued" (>120%). Any unexpected negative news could accelerate mean reversion.
Second, capital and sentiment are at extreme levels. The BofA Bull & Bear Indicator rose to 8.5 in late May, firmly locked in the "Extreme Greed" zone, often considered a reliable contrarian sell signal. The American Association of Individual Investors (AAII) bullish sentiment reading was mostly in the 35%-45% range in May, indicating optimistic but not extreme euphoric sentiment. Retail margin debt balances remained near a historical high of around $1.3 trillion in April-May, showing continued aggressive use of leverage.
Meanwhile, "smart money" has shown signs of retreat: Berkshire Hathaway's Q1 13F report revealed its cash and cash equivalents reached a record high of approximately $397 billion, and the company continued to be a net seller of stocks in Q2; the insider selling-to-buying ratio climbed to a relatively high level in May, the highest since 2021.
Third, technical indicators show critical breakdowns. Last Friday, the S&P 500 not only fell below short-term moving averages but also breached the lower rail of the recent uptrend channel. The index is currently testing its 200-day moving average (around the 7000-7200 point range). Technical analysts like BTIG's chief technical strategist Jonathan Krinsky point out that if the S&P 500 fails to quickly reclaim key support levels and further loses the 200-day moving average, it would technically confirm the potential start of a mid-term correction, with an adjustment range possibly reaching 10%-15%.
IV. Bull vs. Bear Debate: Pullback, Correction, or Beginning of a Bear Market?
Faced with the market pullback, Wall Street's bulls and bears quickly took sides, engaging in a fierce debate.
The bearish camp believes this could be the beginning of a bubble adjustment. Some strategists point to emerging risks of "stagflation" in the U.S. economy—while the May ISM Manufacturing PMI rebounded to 54.0 (indicating expansion), inflation indicators remain sticky. They warn that corporate earnings growth may face downward revision pressure due to financing costs and demand uncertainty, and the current equity risk premium is at low levels.
Societe Generale's star strategist Albert Edwards, a long-term skeptic, warns that the AI bubble resembles past tech bubbles, potentially accompanied by capital misallocation and challenges for some companies, with the Nasdaq facing significant downside risk.
The bullish camp emphasizes this is a healthy, overdue correction within a bull market. Goldman Sachs' chief U.S. equity strategist, David Kostin, acknowledges high valuations but argues a market driven by earnings growth still has support. He expects S&P 500 component earnings to grow about 7% in 2026, with productivity gains from AI starting to improve corporate margins in the second half. "The strong NFP data precisely proves the economy is not heading for a hard landing, with minimal recession risk. When the rate panic subsides, capital will re-recognize the solidity of the earnings foundation." Goldman maintains a higher year-end target for the S&P 500, previously raised to the 6900-7600 range.
UBS Global Wealth Management also advises clients to "buy the dip," citing healthy household and corporate balance sheets and ongoing corporate share buyback plans providing a market buffer.
Charles Schwab's chief investment strategist, Liz Ann Sonders, offers a moderate and pragmatic perspective: "'The top' is never a point but a process. Currently, the liquidity- and sentiment-driven broad rally phase has ended. We are entering a fundamentals-driven stock-picking market. Overall market indices may range-bound and trend slightly lower over the coming months, but a 2008-style crash is unlikely unless we see a freeze in credit markets."
V. Key Future Catalysts: Inflation Data and the Fed's "Judgment"
Undoubtedly, two major events this week will serve as critical watersheds determining the nature of this adjustment. On Wednesday, June 10, the U.S. May Consumer Price Index (CPI) will be released. Market consensus expects the core CPI year-on-year increase to be around 2.8%-2.9% (April was 2.8%). If the data significantly exceeds expectations upward, it will further reinforce market concerns about "sticky inflation" and potentially push back Fed rate cut expectations further, intensifying pressure on bond and stock markets.
The Federal Reserve's Federal Open Market Committee (FOMC) meeting on June 16-17 will be an important observation window. Following the strong June 5 NFP data, several Fed officials reiterated the need for caution. Officials like Cleveland Fed President Beth Hammack emphasized that while the labor market shows resilience, interest rates may need to remain at current higher levels for longer. The Economic Projections Summary (dot plot) released then will be closely watched. If the median projection shows fewer rate cuts in 2026 than previously anticipated, or even hints at maintaining rates unchanged for the year, market expectations for the rate path will undergo significant repricing.
Additionally, geopolitical and trade policy risks could also introduce extra uncertainty. The U.S. has previously implemented import tariffs and export controls on advanced semiconductors to strengthen domestic supply chain security and restrict key technology outflow. This ongoing policy direction, when tech stock sentiment is fragile, could still have long-term impacts on the global AI supply chain, raise the inflation center, and thereby compress valuations for some companies.
Conclusion
Returning to the initial question: "Have U.S. stocks peaked?"
For investors, all the necessary conditions sufficient to confirm a long-term major peak—extreme valuations, policy shifts, core narrative cracks, retail euphoria, technical breakdowns—are appearing simultaneously for the first time in over a decade. Historical experience shows that when these signals resonate highly, even if the bull market doesn't end immediately, the risk-reward ratio has already deteriorated extremely. The current market is in a fragile transition period from "narrative" to "reality." The long-term productivity promise of the AI revolution must now begin to undergo rigorous scrutiny from every piece of macro data and earnings report.
The era of one-sided bets on a perpetually rising market may be over. Caution is the most fundamental respect for risk. Over the next two weeks, investors need to closely watch every decimal point in the May CPI report and every potential micro-shift in the Fed's dot plot. Together, they will determine whether this summer is an interlude within a bull market or the prelude to a new era.
