While the controversy over the US debt ceiling gets all the scary headlines, many investors appear to be focused elsewhere.
Earnings season, most notably, has raised the issue that there's a whole other story happening in the economy, namely that corporate America—sharply reduced workforce and all—is doing just fine despite all the global distress.
That could be the main reason that, with Congress locked in seemingly intractable opposing positions over the $14.3 trillion debt ceiling,the market hasn't really seemed to mind.
"There must be something else good going on," Bob Doll, BlackRock's chief equity analyst, observed in a CNBC interview.
Indeed, the earnings season has told a seemingly incongruous story of company health amid 9.2 percent unemployment, rising inflation and perhaps the worst housing market in US history.
Of the 148 companies that have reported so far from the Standard & Poor's 500 , 73 percent have topped analyst expectations, according to Capital IQ. Surprisingly, the strongest of the bunch has been financials, which have beaten Wall Street consensus by 11.6 percent, even with disappointments from Bank of Americaand Goldman Sachs .
The trend so far has only reinforced the notion that while the economy may get bruised and battered, stocks will continue to find buyerseven amid all the political uncertainty attached to the debt debate. Stocks, in fact, are slightly higher for July, which was widely expected to be a tough month for the market.
"Supported by strong earnings and reasonable valuations, the case for equities is good even though the headlines against which earnings are delivered are unsettling," Hans F. Olsen, head of investment strategy for the Americas at Barclays Wealth, said in an analysis.
To be sure, if the debt deal falls though and the US actually does default, all bets would be off. But that's considered an increasingly unlikely position, despite the public doom-and-gloom pronouncements from Treasury Secretary Timothy Geithner and others in Washington.
One market pro even compared the fear of a default to Fred Sanford, the protagonist on the old "Sanford & Son" TV show who used to fake heart attacks to get sympathy and attention. "What will happen to the stock market if the President and GOP can’t come to a resolution before Aug. 2nd and the government is forced to shut down? Almost nothing!" wrote Robert Laura, president of Synergos Financial Group in Howell, Mich.
"There will be great wailing and gnashing of teeth today in Washington; there will be threats of chaos and confusion," Dennis Gartman wrote in "The Gartman Letter" investor guide. "There will be threats of economic collapse, and none of this will happen."
So where would investors like the focus? Why, on the areas of the market they think will prosper, of course.
Gartman sent his clients back into the gold tradeMonday, a move that seemed wise and one in which he does not advocate in US dollars but rather in more stable sterling and euros.
One of the keys to the gold trade is a hunt for safety, a trade that normally goes to the same government debt that is the key of the Washington histrionics.
Even in stocks, then, the trend is not for wholesale buying but rather selectivity based on the uncertain landscape ahead.
"A last-minute stopgap deal on the US debt ceiling will be reached, but (will fail) to provide a credible long-term solution and likely result in a US credit rating cut to AA by year-end or early next year," David Bianco, chief US equity strategist at Bank of America Merrill Lynch said in a note. "That should have a small impact on the S&P 500."
For those concerned with "tail risks"—or improbable but high-impact events—BofAML recommends clients decrease exposure to financials and increase allocation to cyclical sectors like technology and energy.
At Barclays Wealth, Olsen recommends a "slight overweight" on cash and shorter-maturity bonds—those with less sensitivity to the inflation that would come with debt uncertainty or default—as issues "both domestic and international will likely batter investor perceptions of risk."
Bonds, despite their extended popularity, look vulnerable.
"Just like stocks that are in a huge, long bull market take a while to turn, that's what we're seeing in bond yields," said Rob Lutts, president and chief investment officer at Cabot Money Management in Salem, Mass. "You can get some pretty fast adjustments once everybody starts getting on that train."
The greater fear in the market, though, seems not to be US debt as much as it is the continuing problems in the European Union. Last week's move to create a fund that would backstop for now the shaky state of debt in peripheral nations such as Greece, Italy and Portugal may have forestalled the crisis for now but is not seen as a long-term solution.
"The problem with debt, especially sovereign debt, is that it has to be paid back. A policy of spend now and worry about the bill later is being revealed as an untenable way to conduct sovereign affairs," Olsen said. "This will be a fixture of the investment landscape for some time to come."