S&P 500 earnings estimates for 2012 have been brought down to $101, down over 10% from the beginning of the year. The momentum for the economy and for earnings estimates are lower. In this context valuations now look neutral, whereas they have been a positive for the market. This adds risk to the market and raises the bar for a positive outcome in Europe.
The news out of Europe last week was an incremental positive. The ECB finally admitted that the high rates of peripheral countries were a problem. They will now attempt to address these issues instead of ignoring it.
In summary, we had positive news out of Europe last week but a 60 point move in the S&P 500 incorporates that good news. If the ECB fails to act strongly or if the economy continues to deteriorate despite ECB action there is now room for downside in the market whereas valuations were previously pricing in deterioration.