Why would my watch adjust my Max HR to a lower HR than the peak HR in an activity?

Because Max HR is not necessarily the peak HR. The peak HR may appear as briefly as just a second (and can be easily just a measurement error), while you have to be able to sustain the max HR for several seconds. I do not know exactly how long Garmin requires, but the following document speaks about 3 minutes max effort for getting your Max HR. It is certainly not the whole 3 minutes that are needed, the value is acquired on a much shorter interval, most likely just a few seconds. Sorry I did not find the exact duration used by Garmin, but generally the duration is in seconds to low tens of seconds.

How Are High Heart Rate and Max Heart Rate Values Calculated on My Garmin Watch? | Garmin Customer Support

Thanks Trux! Makes sense that it would need to be a little more sustained to qualify as one's max HR.