How would you react to an E2 who "smart mouths" you in formation?

I believe he/she would be pushing the floor for long weekend duty.

First off had I been the senior E-5 that young PVT. would be in a world of hurt. That being said the situation needs to be made clearer. Was the E-5 the immediate supervisor or squad leader platoon SGT. ect? Where did PVT. Snuffy come from another unit another section/squad ect? Finally had this conduct happen before and not dealt with?

I don't know. I had great NCOs that handled that stuff for me. I'd listen to what they needed from me by way of support had that happened to them.
As a platoon leader, I had a former ROK Soldier who was an E5, last name Bunner. He had an issue and my platoon sergeant asked me to leave the area for an hour so they could deal with it.
That PV2 was never a problem after that and actually started to move from being a dirt bag to being someone with potential.

Being a veteran, I never disrespected my sergeants. I looked to them for guidance. I would have smoked the crap out of the E2 so he will remember his place!

There is only one way to react. Pull him out of formation and send him to the 1sg for Article 15. This namby pamby BS that is our military today needs to be brought under control. They have signed a contract ands sworn an oath to obey the orders of those appointed over them. If they can't do that, then a few more BCD's need to be handed out to show we mean business.

In my day, he would probably receive some special counseling in the aft 5" magazine. This would be followed by all the worst shit details for the rest of his life, and never giving him a recommendation for advancement to E-3.

Immediate reaction: "Half right face. Front leaning rest position, move!"

I am of the opinion, and experience, that insubordination needs to be dealt with quickly. You can speak with him about where it was coming from later. Right there and right then you need to be sure that everyone else knows who is really in charge, and it's not the E-2.

Petty officer; that is gross insubordination and conduct unbecoming and should be dealt with with an Art. 15 at the most and "extra training and motivation" might be just the ticket. Have him dig fighting positions and refill them until they can't lift a shovel. Just my two cents.

We would have a "Wall to Wall Counseling" session

Well, it seems appropriate in this situation to ask the individual to stand fast, take a knee, and talk about their feelings and why they don't want to comply. After all, the military is here for them, not the other way around... In a universe far far away lol.