Author: Qin Xiaofeng
Nasdaq drops 4.2% in a single day—does "Black Friday" burst the U.S. stock market bubble?
On Friday, June 5, U.S. equities experienced the most severe single-day pullback since the beginning of 2026.
The Nasdaq plunged 4.18% to close at 25,709.43, marking its largest single-day drop since April 2025; the S&P 500 fell 2.64% to 7,383.74, ending a nine-week winning streak; the Dow Jones dropped 695.15 points (1.35%) to close at 50,866.78. The Philadelphia Semiconductor Index tumbled over 10%, wiping out approximately $1.3 trillion in market value in a single day, with AI core stocks such as NVIDIA, Broadcom, Micron, and Marvell leading the declines.
At this moment, the question of whether the U.S. stock market has reached its peak lingers in the minds of every investor. Odaily Planet Daily will conduct a rigorous analysis based on recent data and historical comparisons: Is the current valuation of the U.S. stock market too high? Is the correction a healthy adjustment or a trend reversal? What are the future drivers?
I. The Full Picture of the June 5 Crash: A Data-Driven "Perfect Storm"
This crash was directly triggered by the non-farm payroll data released on Friday evening.
The U.S. Department of Labor's May non-farm payroll data showed an addition of 172,000 jobs, nearly double the market expectation of 88,000 and significantly higher than April's 115,000. April’s employment data had already exceeded expectations. Additionally, March’s employment data was revised upward by 29,000, and April’s was revised up by 64,000, making the job growth rate over the past three months the strongest in two years. This indicates that previous employment data systematically underestimated the state of the U.S. labor market, sufficient to raise market concerns about economic overheating.
Strong employment data has raised inflation expectations, with markets anticipating the Fed could raise rates as early as October this year. Following the data release, U.S. Treasuries were sold off, with the 10-year yield rising 5.8 basis points to 4.531%, and the 2-year yield, more sensitive to policy rates, increasing over 7 basis points in a single day to 4.1%.
Bond yields surged, and tech stocks, as high-valuation, high-growth assets, were most sensitive to interest rates and suffered heavy losses.
Although Broadcom's prior-day earnings report was strong, its guidance for AI custom chip business failed to surpass the market's extremely high expectations, triggering a chain reaction. NVIDIA fell over 6%, Micron dropped 13.3%, Marvell slid 16.7%, and AMD declined 10.9%. The semiconductor sector experienced concentrated profit-taking, compounded by doubts about the sustainability of AI capital expenditures, creating a domino effect. Although Meta is reportedly planning to add hundreds of billions in additional AI investment, it was insufficient to reverse the sector's downward trend.
Trading volume has surged, and the VIX fear index spiked 37% to 21.15, indicating a rapid spread of risk-averse sentiment. Bitcoin has simultaneously fallen below $60,000, while gold and crude oil have also pulled back, placing broad pressure on risk assets. However, not all sectors declined: defensive sectors such as utilities, healthcare, and consumer staples rose against the trend, with “blue-chip” stalwarts like Johnson & Johnson and Coca-Cola attracting safe-haven capital.
On the weekly chart, the S&P 500 ended its nine-week winning streak, while the Nasdaq fell 4.7% for its worst weekly performance in over a year. The Dow Jones Industrial Average showed relative resilience, declining just 0.3%, indicating signs of sector rotation.
“This is an extreme case of ‘good news is bad news,’ ” noted Michael Wilson, Morgan Stanley’s Chief U.S. Equity Strategist, in his post-market report. “Strong employment data means the Fed’s tightening shackles will be tightened further, directly undermining the only pillar supporting Wall Street’s high valuations—the expectation of imminent rate cuts.”
II. The AI Myth Fades: The Domino Effect of Crowded Trades
If the non-farm payroll data was the spark, then the accumulated bubble and fragility within the AI sector are the highly explosive powder.
Over the past 18 months, AI has been the sole narrative driving U.S. stocks to record highs. NVIDIA's market capitalization once surpassed $5 trillion, accounting for more than 7% of the S&P 500 index, and stocks related to the entire AI ecosystem once approached 40% of the S&P's total market capitalization.
However, since the second quarter of 2026, this belief has begun to show cracks.
Several cloud service providers have recently been reported to be cutting orders for NVIDIA's next-generation Blackwell Ultra chips, due to overstocking from earlier purchases and slower-than-expected monetization of enterprise AI applications compared to infrastructure investments. Although NVIDIA's earnings report released at the end of May still showed impressive figures, its revenue growth guidance has slowed for the third consecutive quarter, and signs of declining gross margins have emerged.
The previously overcrowded long positions in tech giants rapidly turned into a fire sale amid interest rate shocks. When the non-farm payrolls data triggered a surge in rates, the appeal of holding these high-duration, high-valuation growth stocks plummeted, causing the most vulnerable marginal buyers—leveraged quantitative funds and retail investors—to collapse first, triggering a chain reaction.
AI trading has shifted from FOMO (fear of missing out) to concern about being trapped. Jeremy Grantham, renowned value investor and co-founder of GMO, has long warned that AI valuations are too high. He has compared the current situation to the eve of the 2000 internet bubble, noting that many AI companies’ revenues may struggle to justify their current high valuations.
III. Valuation and Historical Comparison: Has the U.S. Stock Market Reached Bubble Peak?
This pullback has sparked widespread discussion about whether the market has topped out, as it occurred against a backdrop of multiple overvalued indicators and elevated sentiment metrics.
First, valuations are at historical highs. Before the pullback on June 5, the S&P 500’s cyclically adjusted price-to-earnings ratio (CAPE, or Shiller P/E) was approximately 39.5, ranking as the third-highest level since the 2000 dot-com bubble and the 2021 pandemic easing period, significantly above the level seen before the 2007 financial crisis. The forward P/E also reached around 22.5, well above the long-term historical average of 15.8. The “Buffett Indicator”—the ratio of U.S. stock market capitalization to U.S. GDP—peaked at 237% by the end of May, far exceeding Buffett’s defined range of “severe overvaluation” (>120%). Any unexpected negative news could accelerate a mean reversion.
Second, sentiment and funding have reached extreme levels. The Bank of America Bull/Bear Indicator rose to 8.5 in late May, firmly entrenched in the “extremely bullish” zone, which is typically viewed as a reliable contrarian sell signal. The AAII’s bullish sentiment ratio remained in the 35%-45% range for most of May, indicating optimism but not extreme euphoria. Retail margin debt balances held near a historical high of $1.3 trillion in April and May, showing continued aggressive use of leverage.
Meanwhile, "smart money" is showing signs of retreat: Berkshire Hathaway’s Q1 13F filing revealed its cash and cash equivalents reached a record high of approximately $397 billion, and the company continued net stock sales in Q2; the ratio of insider selling to buying rose to one of the highest levels since 2021 in May.
Third, a key technical breakdown has occurred. The S&P 500 index not only broke below its short-term moving averages last Friday but also pierced the lower boundary of the recent uptrend channel. The index is now testing the 200-day moving average, around the 7,000–7,200 range. Technical analysts such as Jonathan Krinsky, Chief Technical Analyst at BTIG, note that if the S&P 500 fails to quickly reclaim this key support level and further declines below the 200-day moving average, it would technically confirm the potential start of a medium-term correction, with a possible pullback of 10%–15%.
Four: Bull vs. Bear Debate: Pullback, Correction, or the Start of a Bear Market?
In response to the market correction, both bulls and bears on Wall Street quickly took sides in an intense debate.
Bears believe this could be the beginning of a bubble adjustment. Some strategists point to early signs of "stagflation" risks in the U.S. economy—although the May ISM Manufacturing PMI rebounded to 54.0 (expanding compared to the prior month), inflation indicators remain sticky. They warn that corporate earnings growth may face downward revision pressures due to higher financing costs and demand uncertainty, and that the current equity risk premium is at a low level.
Société Générale’s star strategist Albert Edwards has long held a cautious view, warning that the AI bubble resembles past technology bubbles and may be accompanied by misallocation of capital and challenges for some companies, posing a significant risk of a sharp correction in the Nasdaq index.
Bullish observers emphasize that this is a healthy, overdue correction within a bull market. David Kostin, Chief U.S. Equity Strategist at Goldman Sachs, acknowledges that valuations are elevated but believes the market remains supported by earnings growth. He expects S&P 500 earnings to rise by approximately 7% in 2026, with labor productivity gains from AI beginning to improve corporate profit margins in the second half of the year. “The strong non-farm payrolls data confirms the economy is not experiencing a hard landing, and recession risks remain very low. Once fears over interest rates subside, capital will once again recognize the solid foundation of earnings.” Goldman Sachs maintains its higher year-end target for the S&P 500, which was previously raised to the 6,900–7,600 range.
UBS Global Wealth Management also advises clients to "buy the dip," citing that household and corporate balance sheets remain healthy and that corporate stock buyback programs will continue to provide market support.
Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, offers a balanced and pragmatic perspective: “A top is never a single point, but a process. The current phase of broad-based gains driven by liquidity and sentiment has ended. We are entering a stock-picking market dominated by fundamentals, where overall market indices may range-bound and slightly decline over the coming months, but a 2008-style collapse is unlikely unless we see a freeze in the credit markets.”
Five: Key Future Milestones: Inflation Data and the Fed’s “Trial”
The two major events coming up this week will be the key turning point in determining the nature of this correction.
On Wednesday, June 10, the U.S. May Consumer Price Index (CPI) will be released. Markets generally expect the core CPI year-over-year increase to be around 2.8%-2.9% (compared to 2.8% in April). If the data significantly exceeds expectations, it could further intensify market concerns about persistent inflation and potentially delay expectations for Fed rate cuts, thereby increasing pressure on both bond and stock markets.
The Federal Open Market Committee (FOMC) meeting on June 16–17 will serve as a key observation window. Following the strong non-farm payrolls data released on June 5, several Federal Reserve officials have reiterated the need for caution. Officials such as Cleveland Fed President Beth Hammack emphasized that while the labor market remains resilient, interest rates may need to be held at current elevated levels for a longer period. The Summary of Economic Projections (dot plot) to be released at the meeting will be closely watched; if the median forecast indicates fewer rate cuts in 2026 than previously expected—or even suggests maintaining rates unchanged for the full year—market expectations for the interest rate path will undergo a significant recalibration.
In addition, geopolitical and trade policy risks may also introduce additional uncertainty. The United States has previously imposed import tariffs and export controls on advanced semiconductors to strengthen domestic supply chain security and restrict the outflow of critical technologies. This ongoing policy direction could still have long-term effects on the global AI industry chain and raise the inflation baseline, thereby compressing valuations for some companies, especially when sentiment toward tech stocks remains fragile.
Summary
Back to the original question: "Has the U.S. stock market reached its peak?"
For investors, all the necessary conditions to confirm a long-term top—extreme valuations, policy shifts, erosion of core narratives, retail mania, and technical breakdowns—are occurring simultaneously for the first time in over a decade. Historical precedent shows that when these signals align strongly, even if the bull market does not end immediately, its risk-reward profile has deteriorated severely. The current market is in a fragile transition phase from “narrative” to “reality,” where the long-term productivity promises of the AI revolution must now withstand rigorous scrutiny from every macroeconomic data point and earnings report.
The era of one-sided bets on perpetual market rallies may be over; caution is the most fundamental form of respect for risk. Over the next two weeks, investors must closely monitor every decimal point of the May CPI report and every subtle shift in the Fed’s dot plot—they will collectively determine whether this summer becomes a brief interlude in a bull market or the opening chapter of a new era.
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