Another positive aspect of the report is that the PCE deflator, which is the Federal Reserve's preferred inflation gauge, rose at the slowest pace in four years at 2.7%, down from 4.2% in the previous quarter, despite the pickup in economic growth. The core PCE deflator, which excludes food and energy, rose 1.4%, much better than the 2.4% rise in the previous quarter and within the Fed's 2% inflation target. Many now think the Fed will not move this year.

Following the report, treasuries lost some ground with and the dollar remained higher. The first few minutes of trading have the markets declining, but not plunging. The report didn't carry U.S. stocks higher immediately as some feel there is still no momentum going into the third quarter, especially after the June durable goods orders reported yesterday that showed a decline. Other concerns, such as the housing sector and subprime mortgage defaults, linger with some indicators deteriorating.

Going forward, investors will need to see more growth, less inflation and a continued strength in manufacturing -- all of which happened the last quarter. The lingering problems of the housing sector and subprime mortgage sector combined with the lower consumer spending will continue to hang over Wall Street. And of course, as long as the credit crunch continues and deals become lonely happenings, this bearish mood could very well continue a while. For now, though, no doubt investors will get a lift from the report and I expect a recovery of sorts today.