Original | Odaily Planet Daily (@OdailyChina)

Author | Qin Xiaofeng (@QinXiaofeng888)

On June 5, Friday, the US stock market saw the most severe single-day correction of 2026 so far. The Nasdaq Composite Index plummeted 4.18%, closing at 25,709.43 points, marking the largest single-day decline since April 2025; the S&P 500 index fell 2.64%, closing at 7,383.74 points, ending a nine-week streak of gains; the Dow Jones Industrial Average dropped 695.15 points (1.35%), closing at 50,866.78 points. The Philadelphia Semiconductor Index crashed over 10%, losing about $1.3 trillion in market value in one day, with core AI stocks like Nvidia, Broadcom, Micron, and Marvell leading the decline.

In an instant, the question of whether "the US stock market has peaked" spread from trading floors to screens of global investors. Odaily Planet Daily will conduct a rigorous analysis, combining recent data and historical comparisons: Is the current valuation of the US stock market excessively high? Is the correction a healthy adjustment or a trend reversal? What are the future driving forces?

1. Overview of the June 5 Plunge: A Data-Driven "Perfect Storm"

This plunge was directly triggered by the nonfarm payroll data released on Friday evening.

The US Department of Labor announced that the nonfarm employment data for May showed an addition of 172,000 jobs, nearly double the market expectation of 88,000 people, and significantly higher than April's 115,000 jobs. The employment data for April had already exceeded expectations. Moreover, the March employment data was revised upwards by 29,000, and April's data was revised upwards by 64,000, making the job growth over the past three months the strongest level in two years. This indicates that the previous employment data systematically underestimated the state of the US job market, raising concerns about economic overheating in the market.

Strong employment data raised inflation expectations, with the market anticipating that the Federal Reserve could raise interest rates as early as October of this year. After the data was released, US Treasury bonds faced a sell-off, and the yield on 10-year Treasury bonds rose by 5.8 basis points to 4.531%, while the yield on the more policy-sensitive 2-year Treasury bonds surged over 7 basis points in one day to 4.1%.

As bond yields soared, tech stocks—known for their high valuations and high growth—were hit hard as they are most sensitive to interest rates.

Despite strong earnings from Broadcom the previous day, the guidance for AI customized chip business did not exceed extremely high market expectations, triggering a chain reaction. Nvidia fell over 6%, Micron dropped 13.3%, Marvell plummeted 16.7%, and AMD fell 10.9%. The semiconductor sector saw concentrated profit-taking, and combined with doubts about the sustainability of AI capital expenditure, it formed a snowball effect. Meta reportedly intends to add several billion dollars in AI investment, but it still failed to reverse the sector's decline.

With increased trading volume, the VIX panic index surged by 37% to 21.15, indicating that risk aversion sentiment spread rapidly. Bitcoin simultaneously broke below $60,000, and both gold and crude oil adjusted, putting pressure on risk assets across the board. However, not all sectors declined: defensive sectors like utilities, healthcare, and consumer staples saw gains, with blue chips like Johnson & Johnson and Coca-Cola attracting safe-haven funds. This indicates that the market is not in a state of complete panic, but rather experiencing targeted adjustments in high-valuation sectors.

From a weekly view, the S&P 500 ended a nine-week rise, while the Nasdaq fell 4.7% for the worst week in over a year. The Dow was relatively resilient, with a slight weekly decline of only 0.3%, reflecting signs of sector rotation.

"This is an extreme manifestation of 'good news is bad news,'" Morgan Stanley’s Chief US Equity Strategist Michael Wilson pointed out in the after-hours report, "Strong employment data means the Fed's tightening shackles will be pulled tighter, directly shaking the only pillar supporting the high valuation of US stocks—the anticipated upcoming interest rate cuts."

2. The AI Myth Fades: The Domino Effect of Crowded Trading

If the nonfarm data is the trigger, then the bubbles and vulnerabilities accumulated within the AI sector are the enormous explosive potential.

For the past 18 months, AI has been the only narrative mainline driving US stocks to new highs. Nvidia's market capitalization once exceeded $5 trillion, accounting for over 7% of the S&P 500 index weight, and the proportion of stocks related to the entire AI ecosystem in the total market value of the S&P once approached 40%.

However, since entering the second quarter of 2026, this faith has begun to crack.

Multiple cloud service providers were recently revealed in supply chain surveys to be cutting some orders for Nvidia's next-generation Blackwell Ultra chips due to previous overstocking and the monetization speed of AI applications on the enterprise side being much slower than infrastructure investment. Although Nvidia's earnings report at the end of May still showed impressive data, its revenue growth guidance has slowed for the third consecutive quarter, and there are signs of a downward trend in gross margin.

Previously extremely crowded long positions in tech giants rapidly morphed into a stampede-style liquidation under the shock of rising interest rates. When the nonfarm data triggered a surge in interest rates, the attractiveness of holding these high duration, high valuation growth stocks sharply declined, leading to an immediate collapse of their fragile marginal buyers—leveraged quant funds and retail investors—triggering a chain reaction.

"AI trading has shifted from FOMO (fear of missing out) to fears of being trapped." Noted value investor and co-founder of GMO Jeremy Grantham has long warned about the overvaluation of AI, likening 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 US Stock Market Reached Bubble Peaks?

The reason why this correction has sparked widespread discussion about whether the market has peaked is due to its occurrence against the backdrop of numerous high valuations and sentiment indicators converging.

First, valuations are at historical highs. Before the correction on June 5, the cyclical adjusted price-to-earnings ratio (CAPE, Shiller P/E) of the S&P 500 index was about 39.5 times, the third highest since the internet bubble in 2000 and the pandemic relaxation period in 2021, significantly higher than the pre-2007 financial crisis level. The forward price-to-earnings ratio also reached around 22.5 times, far above the long-term historical average of 15.8 times. The "Buffett Indicator"—the ratio of US stock market total market cap to US GDP—reached as high as 237% at the end of May, well exceeding Buffett's defined "severely overvalued" range (>120%). Any unexpected negative news could accelerate mean reversion.

Secondly, capital and sentiment are at extreme levels. The Bank of America bull-bear indicator rose to 8.5 in late May, firmly locked in the "extremely bullish" zone, which is usually considered a reliable contrarian sell signal. The bullish sentiment ratio among individual investors according to the American Association of Individual Investors (AAII) remained in the 35%-45% range during most of May, indicating sentiment was optimistic but not extremely euphoric. Retail margin debt remained at around $1.3 trillion in April-May, a historical high, indicating continued aggressive leverage use.

Meanwhile, "smart money" has shown signs of retreat: Berkshire Hathaway's Q1 13F report displayed cash and cash-equivalent reserves reaching about $397 billion, a historical high, with the company continuing to net sell stocks in Q2; the ratio of insider selling to buying rose to a higher level in May since 2021.

Thirdly, technical indicators have shown key breakdowns. The S&P 500 index not only fell below its short-term moving averages last Friday but also pierced through the lower bound of the ascending channel maintained recently. The index is currently facing a test of the 200-day moving average (approximately in the 7000-7200 points range). Technical analysts like BTIG's Chief Technical Analyst Jonathan Krinsky indicated that if the S&P 500 fails to quickly reclaim crucial support levels and further breaks below the 200-day moving average, it would technically confirm the potential beginning of a mid-term corrective market, with adjustments possibly reaching 10%-15%.

4. The Bear-Bull Debate: Correction, Adjustment, or the Start of a Bear Market?

In the face of the market correction, both sides of Wall Street rapidly took their positions, sparking an intense debate.

The bears argue that this could be the beginning of a bubble adjustment. Some strategists warn that there are signs of a certain "stagflation" risk in the US economy—though the manufacturing PMI rose to 54.0 in May (indicating expansion), inflation indicators remain sticky. They caution that corporate earnings growth may face downward revision pressure due to rising financing costs and demand uncertainties, and the current equity risk premium is at a low level.

Albert Edwards, a leading strategist at Société Générale, has long held a cautious view, warning that the AI bubble is similar to past tech bubbles and may bring about misallocation of capital and challenges for certain companies, posing a significant risk of a sharp correction in the Nasdaq index.

The bulls, on the other hand, emphasize that this is a healthy, overdue adjustment in a bull market. Goldman Sachs' Chief US Equity Strategist David Kostin acknowledged that valuations are at high levels but believes the market driven by earnings growth still has support. He expects earnings for S&P 500 constituents to grow by about 7% in 2026, with productivity improvements from AI beginning to enhance corporate profit margins in the second half. "The strong nonfarm data precisely proves that the economy has not hard-landed, and the risk of recession is very low. Once interest rate panic subsides, funds will again realize the stability of the profit fundamentals." Goldman Sachs maintains a high year-end target for the S&P 500 index, which has previously been raised to the 6900-7600 range.

UBS Global Wealth Management also advises clients to "buy the dips," reasoning that household and corporate balance sheets remain healthy, and corporate stock buyback plans will continue providing a buffer for the market.

Charles Schwab Chief Investment Strategist Liz Ann Sonders provided a middle-ground and pragmatic perspective: "'Topping' is never a point but a process. Currently, the liquidity and sentiment-driven broad gains phase has ended. We are entering a stock-picking market dominated by fundamentals, where overall market indices may oscillate and slightly decline in the coming months but won't see a collapse like in 2008 unless we witness a freeze in the credit market."

5. Future Key Nodes: Inflation Data and the Fed's "Judgment"

Undoubtedly, the two major events coming up this week will serve as key dividing lines in determining the nature of this adjustment. On June 10 (Wednesday), the US May Consumer Price Index (CPI) will be released. The market generally 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, it will further strengthen market concerns about "sticky inflation" and may further delay interest rate cut expectations from the Federal Reserve, thereby increasing pressure on both the bond and stock markets.

The Federal Open Market Committee (FOMC) meeting on June 16-17 will be an important observation window. After the strong nonfarm data was released on June 5, several Federal Reserve officials reiterated the need for caution. Cleveland Fed President Beth Hammack and other officials emphasized that although the labor market shows resilience, interest rates may need to be maintained at current high levels for a longer time. The economic forecasts summary (dot plot) to be released at that time will be closely watched. If the median forecast indicates fewer expected interest rate cuts in 2026 than previously anticipated, or even suggests keeping rates unchanged throughout the year, the market's expectations about the interest rate path will undergo a significant reconfiguration.

Additionally, geopolitical and trade policy risks may also bring extra uncertainty. The US has previously implemented import tariffs and export controls on advanced semiconductors to enhance domestic supply chain security and limit key technology outflows. This ongoing policy direction, while the sentiment in tech stocks is fragile, could still have long-term impacts on the global AI supply chain and elevate inflationary pressures, thereby compressing valuations of certain companies.

Conclusion

Returning to the initial question: "Has the US stock market peaked?"

For investors, all necessary conditions to confirm a long-term top—extreme valuations, policy shifts, weakening core narratives, retail exuberance, technical breakdowns—are appearing simultaneously for the first time in over a decade. Historical experience suggests that when these signals resonate highly, even if the bull market does not end immediately, its risk-reward ratio has already deteriorated significantly. The current market is in a fragile transition period from "narrative" to "reality," and the long-term productivity promises of the AI revolution must begin to withstand the rigorous testing of every macroeconomic data point and earnings report.

The era of unilateral bets on an eternally rising market may be over; caution is the most fundamental respect for risk. In the next two weeks, investors need to closely monitor every decimal point of the May CPI report and every small shift that may occur in the Fed's dot plot, as they will jointly determine whether this summer is merely an interlude in a bull market or the prologue to a new era.

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