Subpar economic recovery? Sure.

S&P 500 (^GSPC) headed straight to 1770 despite that situation? You bet.

That’s according to the “optimistic” projection, at least, coming from Erin Gibbs, Equity Chief Investment Officer at S&P’s Investment Advisory Services.

And that’s also Gibbs who characterizes the recovery as “subpar.” Despite record corporate profits and steady job gains, she cites GDP growth and wage growth as lackluster.

Gibbs’ more moderate projection for the market is 1740. That’s still a ways up from where the index stands now – closing at 1694 Tuesday, having already gained more than 15% so far this year.

In the above interview, Gibbs explains her methodology and why she sees stocks heading higher given her cautionary assessment of the US economy.

Now, if the Fed tapers in September, as some are anticipating and as Bernanke (and other Fed officials) have indicated could happen, surely the continued stock ascent she forecasts would be derailed. Not according to Gibbs. She tells The Daily Ticker the S&P 500 would still be headed right for her target.

“I think it’s more likely we won’t meet that [1770] target if the question of tapering is still out there,” she says. “If they start to taper, then it’s truly because the economy’s doing so well… I certainly don’t think that’s going to happen – I think we still need that gas on the gas pedal to push us through. But if the economics come in… and we are doing so extraordinarily well and they feel they can back off in September, that’s a great sign for earnings.”

In terms of how investors have been reacting to earnings, Gibbs finds that since the second quarter earnings season started, the market has reacted less negatively to companies that meet or miss earnings compared to previous quarters in the past six years.

Companies that have missed EPS estimated for Q2 2013 saw a -1.2% return in the five days after reporting compared to an average of -2.3% since 2005, according to Gibbs.

“People are not really paying attention to fundamentals,” she says. “It’s very much driven by the macroeconomic story” including a search for yield.

In this market, she’s looking for good deals that will pay off once the macro story dies down (if the Fed tapers, she thinks the fundamentals will become more important once again).