Gluskin Sheff analyst David Rosenberg has good news and bad news.

The good news: Earnings have been rising while the market has been correcting, which has helped cut the degree of overvaluation in half.

The bad news: the ECRI leading economic index foreshadows a deceleration in real GDP growth, to 1.5 percent in the second half of the year from the 3.75 percent average pace since the recession technically appeared to have ended around mid-2009. Because of that, the S&P 500 Index may fall more than 20 percent.

"The S&P 500 level that would be consistent with that sort of pace would be closer to 850 than the current level" of about 1,100, Rosenberg wrote in a note to investors.

"In other words, there is still more air to come out of the balloon."

The problem for Mr. Market, Rosenberg says, is that it went into this latest Europe-induced ordeal with an excessively bullish GDP growth outlook for the U.S.

“At the April highs, we would argue that a GDP growth rate of 6% was effectively being discounted,” he observes. “How nutty is that?”

However, in the aftermath of the correction, the equity market is now pricing in a growth rate closer to 3.5 percent — the fact that earnings have been rising while the market has been correcting has helped cut the degree of overvaluation in half, Rosenberg points out.

Some of the market's early morning enthusiasm dissipated after the Commerce Department revised its estimate of first-quarter GDP down to a 3.0 percent annual rate January Through March, the Wall Street Journal reports.

In the government's original report on first-quarter GDP, it estimated an increase of 3.2 percent. Economists surveyed by Dow Jones Newswires had expected the estimate would be revised up to 3.4 percent.