Original | Odaily Planet Daily (@OdailyChina)
Author | Qin Xiaofeng (@QinXiaofeng 888 )
On Friday, June 5th, the U.S. stock market experienced its sharpest single-day correction 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 index fell 2.64% to 7,383.74 points, ending a nine-week winning streak; the Dow Jones Industrial Average dropped 695.15 points (1.35%) to 50,866.78 points. The Philadelphia Semiconductor Index crashed over 10%, erasing approximately $1.3 trillion in market value in a single day, with core AI stocks like Nvidia, Broadcom, Micron, and Marvell leading the decline.
Instantly, the question of "Has the U.S. stock market peaked?" spread from trading floors to screens of investors worldwide. Odaily Planet Daily will conduct a rigorous analysis combining recent data and historical comparisons: Are current U.S. stock valuations too high? Is this a healthy pullback or a trend reversal? Where are the future drivers?
1. The Full Picture of the June 5th Plunge: A Data-Driven 'Perfect Storm'
The immediate trigger for this plunge was the non-farm payroll data released Friday evening.
U.S. Labor Department data for May showed a job increase of 172,000, nearly double the market expectation of 88,000 and significantly higher than April's 115,000. April's employment data had already exceeded expectations. March's figures were revised up by 29,000, and April's by 64,000, making the past three months' employment growth the strongest in two years. This indicates a systemic underestimation of the U.S. job market in previous reports, enough to spark overheating concerns.
The strong job data raised inflation expectations, with markets anticipating the Fed could raise rates as early as October this year. Post-data, U.S. Treasuries were sold off, with the 10-year yield rising 5.8 basis points to 4.531%, and the more policy-sensitive 2-year yield jumping over 7 basis points to 4.1% in a day.
The spike in bond yields hit tech stocks hardest, as high-valuation, high-growth assets are most sensitive to interest rates.
Broadcom's strong earnings the previous day failed to meet 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 plunged 16.7%, and AMD declined 10.9%. A concentrated profit-taking in the semiconductor sector, coupled with doubts about the sustainability of AI capital expenditures, created an avalanche effect. Reports that Meta plans to invest hundreds of billions more in AI failed to stem the sector's decline.
Volume surged, and the VIX fear index spiked 37% to 21.15, indicating rapidly spreading risk aversion. Bitcoin also fell below $60,000, with gold and oil adjusting lower, showing pressure across risk assets. However, not all sectors fell: Defensive sectors like utilities, healthcare, and consumer staples rose against the market trend, with "old-guard blue chips" like Johnson & Johnson and Coca-Cola attracting safe-haven flows. This suggests the market was not in a full-blown panic but rather undergoing a targeted adjustment in overvalued sectors.
On a weekly basis, the S&P 500 ended its nine-week rally, the Nasdaq lost 4.7% for its worst week in over a year. The Dow showed relative resilience, down only 0.3% for the week, reflecting signs of sector rotation.
"This is an extreme manifestation of 'good news is bad news'," said Michael Wilson, Morgan Stanley's Chief U.S. Equity Strategist, in an after-market report. "Strong employment data means the Fed's tightening shackles will be clamped tighter, directly shaking the only pillar supporting U.S. stock high valuations—the imminent rate cut expectation."
2. The AI Myth Fades: Dominoes of a Crowded Trade
If the non-farm payroll was the trigger, then the bubble and fragility accumulated within the AI sector itself were the massive explosive charge.
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's weight, with the entire AI ecosystem-related stocks approaching 40% of the S&P's total market cap.
However, since Q2 2026, cracks have begun to appear in this faith.
Recent supply chain surveys revealed that several cloud service providers are cutting some orders for Nvidia's next-generation Blackwell Ultra chips due to overstocking and slower-than-expected monetization of enterprise AI applications. Nvidia's late-May earnings, while still impressive, showed its revenue growth guidance slowing for the third consecutive quarter, with gross margin showing early signs of decline.
The previously extremely crowded long-tech giants trade rapidly turned into a stampede for exits under the interest rate shock. When non-farm data triggered the rate spike, the appeal of holding these high-duration, high-valuation growth stocks plummeted. Their marginal buyers—leveraged quantitative funds and retail investors—were the first to retreat, triggering a chain reaction.
"The AI trade has shifted from FOMO (Fear Of Missing Out) to fear of being trapped." noted Jeremy Grantham, co-founder of GMO and a well-known value investor who has long warned of excessive AI valuations. He has compared the current situation to the eve of the 2000 internet bubble, pointing out that many AI companies' revenues may struggle to support their current high valuations.
3. Valuation and Historical Comparison: Has the U.S. Stock Market Reached a Bubble Peak?
The reason this pullback sparked widespread discussion about a "market top" is its occurrence against a backdrop of converging high valuation and sentiment indicators.
First, valuations are at historically high levels. Before the June 5th correction, the S&P 500's Cyclically Adjusted Price-to-Earnings ratio (CAPE, Shiller P/E) was around 39.5, the third highest after the 2000 internet bubble and the 2021 pandemic stimulus period, significantly above pre-2008 financial crisis levels. The forward P/E ratio 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, well above the "significantly overvalued" range defined by Buffett himself (>120%). Any unexpected negative news could accelerate mean reversion.
Second, capital and sentiment were at extreme levels. The BofA Bull & Bear indicator rose to 8.5 in late May, firmly locked in the "extreme bullish" zone, often seen as a reliable contrarian sell signal. The American Association of Individual Investors (AAII) bullish sentiment reading was in the 35%-45% range for most of May, optimistic but not reaching extreme euphoria. Retail margin debt balances remained near a record high of around $1.3 trillion in April-May, indicating active use of leverage.
Meanwhile, "smart money" showed signs of retreat: Berkshire Hathaway's Q1 13F filing revealed its cash and equivalents reached a record high of about $397 billion, with the company maintaining net stock sales in Q2; the ratio of corporate insider selling to buying rose to higher levels in May, the highest since 2021.
Third, key technical breakdowns occurred. The S&P 500 not only broke below short-term moving averages last Friday but also breached the lower rail of its recent uptrend channel. The index is now testing its 200-day moving average (around the 7000-7200 point range). Technical analysts like BTIG's Chief Technical Analyst Jonathan Krinsky note 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 possible start of a mid-term correction, with a potential decline of 10%-15%.
4. Bull vs. Bear Debate: Pullback, Correction, or Bear Market Beginning?
Facing the market correction, Wall Street's bulls and bears quickly took sides, engaging in a fierce debate.
The bearish camp believes this could be the start of a bubble adjustment. Some strategists point to potential "stagflation" risks in the U.S. economy—while the May ISM Manufacturing PMI rebounded to 54.0 (expansion from the previous month), inflation indicators remain sticky. They warn that corporate earnings growth may face downward revision pressure due to financing costs and demand uncertainty, and the equity risk premium is currently at low levels.
Albert Edwards, Société Générale's star strategist and a long-term bear, warned that the AI bubble resembles past tech bubbles, potentially accompanied by capital misallocation and challenges for some companies, with the Nasdaq index 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 AI-driven productivity gains improving corporate profit margins starting in the second half. "Strong non-farm data precisely proves the economy isn't heading for a hard landing, with minimal recession risk. Once rate panic subsides, capital will recognize the solid 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 cushion.
Charles Schwab's Chief Investment Strategist Liz Ann Sonders offers a balanced, pragmatic perspective: "A 'top' is never a point but a process. Currently, the liquidity- and sentiment-driven phase of broad gains is over. We are entering a fundamentals-driven stock-picking market. The overall market index may range and trend slightly lower over the coming months, but a 2008-style collapse is unlikely unless we see credit markets freeze."
5. Future Key Junctures: Inflation Data and the Fed's 'Judgment'
Undoubtedly, two major events in the coming week will be critical watersheds determining the nature of this adjustment. On Wednesday, June 10th, the U.S. May Consumer Price Index (CPI) will be released. The market consensus expects core CPI year-over-year growth around 2.8%-2.9% (April was 2.8%). If data significantly exceeds expectations upward, it will further reinforce market concerns about "sticky inflation," potentially pushing back Fed rate cut expectations further, intensifying pressure on bonds and stocks.
The Federal Reserve's Federal Open Market Committee (FOMC) meeting on June 16-17 will be a crucial observation window. Following the strong June 5th non-farm data, several Fed officials reiterated the need for caution. Officials like Cleveland Fed President Beth Hammack emphasized that while the labor market shows resilience, rates may need to stay at current higher levels for longer. The released Economic Projections Summary (dot plot) will be closely watched. If the median projection shows fewer rate cuts in 2026 than previously expected, or even suggests rates remain unchanged for the year, market expectations for the rate path will undergo significant repricing.
Additionally, geopolitical and trade policy risks could introduce extra uncertainty. The U.S. has previously imposed import tariffs and export controls on advanced semiconductors to strengthen domestic supply chain security and restrict key technology outflows. This ongoing policy direction, during fragile tech sentiment, could have long-term impacts on the global AI supply chain, raise the inflation center, and compress valuations for some companies.
Conclusion
Returning to the initial question: "Has the U.S. stock market peaked?"
For investors, all necessary conditions sufficient to confirm a long-term major top—extreme valuation, policy shift, core narrative loosening, retail frenzy, technical breakdown—are appearing simultaneously for the first time in over a decade. Historical experience suggests that when these signals highly resonate, even if the bull market doesn't end immediately, its 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 withstand the rigorous test of every macroeconomic data point and earnings report.
The era of one-sided bets on perpetual market gains may be over. Prudence is the most fundamental reverence for risk. In the coming two weeks, investors need to closely watch every decimal point in the May CPI report and every slight shift in the Fed's dot plot. Together, they will determine whether this summer is an interlude in a bull market or the prelude to a new era.
