I think the main reason for the fall is the inflation figure. Benny cannot go outside of his mandate to keep inflation in check hence reducing likelyhood of QE3. Some were banking on a QE3 announcement but now they realise that the Fed's hands are tied.
We'll need to see unemployment back towards 10% to justify a QE3 I believe.
I dont think stocks are pricing in sovereign defaults yet (some bond yields are getting there) - simply pricing in flat growth with less chance for stimulus.
http://www.bloomberg.com/news/2011-08-18/consumer-prices-in-u-s-increased-more-than-forecast-in-july.html
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I think the main reason for the fall is the inflation figure....
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