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

Get into their personal space, right up next to their ear and clearly communicate the situation including a few questions so they will have to answer "yes, sgt" "no, sgt." "you're word is law, sgt? That is all the others will need to hear to understand that order is in place.

when I was in there was a lot simpler solution it went like this. Everyone say thank you to Private Shitberg and now you may commence PUSHUPS FOREVER !!

Depends on what you call being a "smart mouth".

If a SM is disregarding lawful instructions, cite the regulations giving you the authority to give those instructions and the potential administrative/punitive/legal consequences for failing to carry out those instructions.
Show them the regulation. DO NOT tell them to look it up. Nothing will give a firmer impression that you're making it up as you go.
Also, don't try the old BS excuse about "not having the time to explain". If you're in garrison, you have the time. If you're not in garrison, neither of you should've made it that far, without this being understood. You've been placed in a position of leadership. Lead.
If, after these things have been thoroughly explained and cited, the behavior persists, call the JAG Office. They're open most weekdays. Have a Legal Specialist describe the lengths (and limits) of your authority to this SM. In fact, it may be a good idea to include the JAG representative at your next Battalion Organizational Day, giving a brief class on this very subject.
If the behavior STILL persists, it's time to start some paperwork. At this point, it cannot be argued that you've given the SM every opportunity to understand their duties and obligations. If they are choosing not to meet those obligations, they belong some place else.

Now, if by "smart mouth", you mean those instances where instructions are being given, which are in excess of your authority or which would be in violation of regulations and a sharp PV2 called you on it, the best thing you can do is own the mistake and correct it. Give them credit for having read and understood the regulation, keeping you from violating it. In all my years of service, the most respect I ever got from subordinates was when they saw I was able to own up to a mistake, rather than going on a power trip.

Why would you allow a PVT to run thier mouth or think they have the right to talk back? Light that PVT up and let them know YOU are in charge. But as a senior E5 you should already know that.

I would get creative with him and his battles. I might be i sensitive but at that point I wouldn't care. If he's gonna go suicidal and/or have issues with following lawful commands how the hecl do you think he is going to behave underfire? Chances ate he is going to get his battles killed. I'd rather correct it in a creative way that either pushes him over so that I can ship him home or he stops being a f---face and does as he is told.

As for creativity...if we are back at home I might make him and his battles tale a hill and put up an 0e-254 while under fire from op4. I'd ask the rest of the platoon to play op4. Then tell him he doesn't get to go home till one of two conditions ate met... he takes the hill, raises said antenna or the sun goes down. Then he gets to do it again the next day for 5 days in a row. See how long he mouths off after that.

... we're gonna have FUN. "PVT F---face what is your problem? Don't like following orders eh? You say your an individual eh? Well tell that to your buddies to your left and your right. Cause they are your new best battle buddies. And everytime you f--- up they are foing to fireman cary you to your next location where they and you will complete what ever task I ask of you. Don't make me give you more best buddies. Cause I when it reaches six I'll let them counsel you as they see fit."

Smoke session

Attitude reflects leadership.... if a troop feels he can act out in such a manor and show complete lack of respect for orders given then problem is most likely starring you in the face through the mirror. I put e4 on and was assigned 5 troops. One of these troops doing his job on a nuke base

I had a private smartmouth embarrass me once in a training class after I just made buck sergeant. I had been out of the field army for a while on special assignment and my NBC skills were lacking. Hence the embarrassment. A week or so later, the private smartmouth found himself in a drunken pickle and in violation of post rules. Suddenly, he realized the error of his ways. He learned a valuable lesson about Karma.

Immediate referral for article 15. Can't have that.