Investors’ spirits have soared as second-quarter earnings appear “less bad” than expected. At the same time, just because earnings are beating analysts’ expectations doesn’t necessarily mean we’re over the hump.

Cutbacks have been a major driver of better-than-expected earnings, as firms across the board have slashed expenses from input to payrolls. That’s led many to surmise that last quarter’s earnings reflect corner cutting rather than revenue growth–not the most encouraging news.

That charge isn’t completely beyond the pale–sales have been hard to come by for most companies–though it is overstated. Once the economy turns and consumers and businesses start buying again, we should see rapid earnings acceleration as a larger cut of every sale goes straight to the bottom line.

And there’s good reason to believe that we’re seeing the backside of the recession.

The Commerce Dept recently revised its figures for second-quarter GDP to a contraction of just 1 percent; previous estimates had pegged the decline at 5.5 percent.

And the Commerce Dept now states that the economic contraction in 2008 was worse than previously thought, leading many to hope that the economy is now swinging to the upside.

Real estate markets are improving dramatically. Sales of both new and existing homes firmed up nicely, though supply overhang–and, by extension, home prices–will likely remain a long-term problem.

Even employment data have shown signs of modest improvement, with the pace of job losses slowing as businesses begin to see the light at the end of the tunnel.

In July, the nation’s unemployment rate fell slightly to 9.4 percent. But so far that hasn’t translated into hiring activity; the rolls of those drawing unemployment benefits continue to swell.

The economy still has some distance to cover before it can be considered healthy, but the markets certainly seem satisfied that it’s on the right track; stocks have rallied well off their March lows.

Given the massive losses investors have suffered, there’s a possibility of a pullback in the indexes this fall as investors take profits. Such a pullback, should it transpire, would present an excellent opportunity for investors to pick up quality names.