To believe the talking heads, investor confidence is being crushed by mutual fund scandals, which dominated news coverage Thursday. Meanwhile, major averages continued their seemingly inexorable climb, raising the question of whether investors really care after all.

I'm not trying to be glib about the allegations levied against (among others) Bank of America's ( BAC - Get Report) Nations Funds, Bank One ( ONE - Get Report), Janus Capital Group ( JNS) and privately held Strong Capital Management. That these firms allegedly allowed Canary Capital Partners to illegally trade mutual funds is grotesque, although hardly shocking given all that's transpired in recent years.

Furthermore, if Canary Capital was getting this kind of preferential treatment, it's naive to believe other big hedge funds weren't getting similar "perks" from the aforementioned firms and/or their peers. (To wit, Thursday's report in The Boston Globe that the Massachusetts attorney general is investigating the Boston office of Prudential Securities for possible illegal mutual fund trading.)

However, just as most investors no longer seem to care about what Jeffrey Saut, chief equity strategist at Raymond James, calls "abracadabra accounting," nor do I suspect most are fretting too much about the mutual fund scandals.

Consider: After the revelations of fraud at Enron, WorldCom, Adelphia, et al, and the brutal bear market of 2000-02, conventional wisdom held that a generation of investors was "lost" to Wall Street and stocks. Yet, equity mutual fund inflows have increased steadily this year since big outflows in February, topping $21.4 billion in July, according to the Investment Company Institute. (Preliminary findings from AMG Data suggest August equity fund inflows totaled $14.1 billion.)

The same "forgive and forget" mentality will take hold regarding the mutual fund transgressions, I contend -- provided, of course, the equity market keeps going up

Major averages did their part Thursday, albeit grudgingly, with the Dow Jones Industrial Average rising 0.2% to 9587.90 while the S&P 500 gained 0.1% to 1027.34 and the Nasdaq Composite climbed 0.9% to 1868.98. This was the seventh-consecutive session of gains for the Comp, the first time that's happened since February 2000.

"The enthusiasm is back," Saut said. "Right here, people don't care about the mutual fund scandals because stocks are going up. If stocks start down again, they will care but I don't know what the linchpin will be" to scuttle the rally.

In fact, the strategist believes stocks are "building for a crescendo on the upside," suggesting short-sellers are getting squeezed and buyers are worried only about missing out on the upside. Such a combination has led to an erosion of selling, he noted, citing Lowry's selling-pressure index recently hitting a multiyear low. "You can feel that's what we're building up for," he said of another spike higher.

On Thursday, an underwhelming 53% of the Big Board's 1.45 billion volume was to the upside vs. 68% of the 1.9 billion shares traded over the counter. New 52-week highs led new lows 318 to 12 in the former and 355 to 6 in the latter while gainers led decliners by about 18 to 14 in both venues.

Having said that, Saut recommends shorting into any significant further upside, given his belief the economy's recovery is not going to be the raging inferno many seers now expect.

A "huge refinance afterburner" plus the July tax rebates provided the "big surge" currently unfolding, he said, while doubting its sustainability.

Thursday's economic news had a positive bent, although the price of the benchmark 10-year Treasury note nevertheless rose 22/32 to 97 31/32, its yield falling to 4.50%.

At 1.6%, July factory orders were well ahead of estimates while, at 65.1, the Institute for Supply Management's services index was in line with consensus. Second-quarter productivity was revised up to 6.8% from 5.7% previously. Overall August retail sales were strong, led by Wal-Mart ( WMT - Get Report) and Pacific Sunwear ( PSUN), although results at Gap ( GPS - Get Report), among others, were weaker than expected. The S&P Retail Index slid 0.4%.

In keeping with recent trends, labor markets remained the big kink in the economy's armor. Weekly jobless claims rose a higher-than-expected 413,000, lifting the four-week moving average above 400,000. That's the first time the moving average has been above the closely watched 400,000 level in five weeks.

The weekly jobless claims raised some concerns about Friday's August jobs report, from which economists are expecting nonfarm payroll growth of about 20,000 and the unemployment rate remaining at 6.2%. However, any such concerns were unable to derail the stock market on Thursday.

Jobs Trump Scandals

Last month, this column examined the possibility of this being a jobless recovery, a theory which has since gained increased attention.

"The current recovery has seen steady growth in output but no corresponding rise in employment," surmised economist at the New York Fed in a paper released this week. "A look at layoff trends and industry job gains and losses in 2001-03 suggests that structural change -- the permanent relocation of workers from some industries to others -- may help explain the stalled growth in jobs."

Separately, Richard Berner, chief U.S. economist at Morgan Stanley, hosted a conference call this week discussing the causes and effects of a jobless recovery.

"It's obvious that the economy is improving, but the jobless nature of the recovery remains its Achilles heel," Berner wrote in a summary of the conference call.

The often-upbeat Berner believes "job growth is poised to improve," suggesting the "post-bubble employment purge has...eliminated the excesses of the 1990s and faster growth will trigger renewed hiring."

Those bullish on shares best hope he's right. For unemployment and/or fear of losing one's job is something that will cause investors to lose confidence en masse, rather than mutual fund scandals many investors might not fully understand. As yet, investors have not lost confidence, or at least have regained it to a large extent, endless prophecies to the contrary notwithstanding.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to Aaron L. Task.