Stocks will have to battle a rough batch of economic news to pull off a third day of gains Tuesday.

Citigroup chief U.S. equities strategist Tobias Levkovich slashed his year end S&P 500 outlook to 850, just a few points above its current level, and 1000 by year end 2009.

In a note today, Levkovich said the stock market has not responded to what normally might have stopped it from cratering. Even with the TARP, central bank intervention and the end of the presidential election, stocks have been unable to turn around.

His S&P targets had been 1200 and 1300, respectively. He now sees the Dow at 8,300 at year end, from a previous forecast of 10,800, and at 9,500 at year end 2009.

"One of the most frustrating elements of the market when thinking about its inability to generate any meaningful upward momentum...is that sinking feeling that the traditional catalysts for a rally simply have failed to provide the fuel for such gains," he wrote.

Levkovich said the lack of policy clarity from President-elect Barack Obama has been a factor. Stocks are also pricing in a very deep economic downturn and are pricing in further steep declines in earnings.

"We would note that earnings trends are deteriorating in dramatic fashion as evidenced by the plunging annualized decline in forward 12-months earnings outlooks, creating an environment in which stock prices cannot advance," he wrote. Citi expects 2009 earnings per share of $64 for the S&P 500.

He said Citi's forecast calls for a further drop in EPS of 14 percent, which equals a 30 percent plunge in trailing 12-month EPS, peak to trough. "It appears as if the equity market is implying a 50 percent drop at current index price levels, which we consider overdone but understandable," he wrote.

• US to Inject $20 Billion into Citigroup, Back Assets

The "investor mindset" is also being influenced by market technicals, including the S&P's break through the 2002 lows last week. A move to 1,000 by yearend 2009 would be a 33 percent recovery off the recent bottom, "similar to the kind of recovery seen by the end of 2003 vs. the lows of October 2002."

Levkovich said investors will need more evidence of thawing in credit markets and stabilization of business. They may also be lured by the potential for more attractive returns on corporate bonds than on equities. "We must concede that the unpredictable happened and has humbled us all," Levkovich wrote at the conclusion of his note.

• Obama Unveils Economic Team to Deal With Crisis

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President-elect Barack Obama's announcement of an economics team Monday may soothe some tensions in financial markets, but investors will keep their eye on the economy, credit crunch and most particularly, Citigroup.

Citigroup management spent the weekend working withregulatorsin an effort to restore confidence in the bank, which has seen its market value plummet as doubts surface in markets about its viability. Citigroup has said it would seek a plan to add capital or find a merger partner but as the weekend winds down, it appears federal officials could throw it a life line by helping backstop it against toxic assets on its balance sheet.

The Dow fell 5.3 percent in the past week but it was rescued from what could have been a more than 10 percent decline by news Friday that New York Fed President Tim Geithner will be named as President-elect Barack Obama's choice for Treasury Secretary Monday. The Dow rallied 6.5 percent on the news, taking it to 8046. The S&P 500 also rallied more than 6 percent Friday, but it was still down 8.4 percent, ending the the week at a round 800.

The Obama Administration is expected to pursue an ambitious stimulus package to jumpstart the faltering economy. In a radio address this weekend, the President-elect said he would direct his economic team to develop a two-year stimulus package aimed at saving or creating 2.5 million jobs.

The Obama economic team is expected to also include former Treasury Secretary Larry Summers as director of the National Economic Council, and New Mexico Gov. Bill Richardson, who will be Commerce Secretary.

"Just about any team that's different from what we have now should help some, because it offers hope of a new and different approach, which almost has to be better than what we have gotten," said James Paulsen, chief investment strategist at Wells Capital Management. Paulsen says he in the camp that does not want to see a lot more government intervention with the financial system.

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• Does Geithner Appointment Stop Washington Blame Game?

It is more important for the new team to show "some calm, confident leadership which reminds everyone less about 'how bad' everything is and more about 'how much has already been implemented and that it will work.' I guess I hope they reflect the 'no drama' Obama personality which I think may help the most," he said.

Econorama

There's lots of data in the week ahead, starting Monday with existing home sales for October. There are actually three key pieces of real estate data in the shortened holiday week. The S&P/Case Shiller home price index is reported at 9 a.m. Tuesday, and new home sales for October are reported at 10 a.m. Wednesday.

"We've got a saloon full of data coming out Tuesday morning. That could be critical," said UBS director of floor operations Art Cashin. He said the market could find a reason to move up if the data is not terrible. "People want to go into Thanksgiving thinking about family, friends and food and things that really matter," he said. The Thursday Thanksgiving holiday is followed by a shortened half day trading session Friday.

On Tuesday, third quarter GDP is reported at 8:30 a.m. Consumer confidence is reported at 10 a.m. that day. Weekly jobless claims are reported Wednesday, as is personal income, durable goods, Chicago purchasing managers and consumer sentiment.

Friday is "black Friday," the traditional launch of the holiday shopping season, which analysts and economists expect to be bleak this year. Retailers sales will be watched for any signs of life. The consumer, hampered by the credit crisis and rising unemployment, has been on a spending strike since mid September.

What's Ahead

In the past week, it became apparent than any progress in the credit markets is a fragile thing. Spreads for all types of instruments widened sharply against Treasuries, a signal to traders that there's still trouble lurking. On Thursday, the flight to safety in Treasuries pushed yields of all durations to record low levels but that action subsided Friday.

Brian Rauscher, director of portfolio strategy at Brown Brothers Harriman, says he sees nothing out there yet to change his bearish view of stocks.

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"I'm still concerned," said Rauscher. He said it might be better to "let the market go further, get the selling out of the way and then we can have an eight month rally. Rip the band aid off."

"At the risk of sounding bearish at the bottom, I keep coming back to the credit markets. I look at what the economy is doing. I look at what analysts are expecting for earnings and all these things are pointing straight down," he said. "Almost everything I look at is still pointed down...(spreads on) anything the central banks are not specifically backstopping, are widening again."

Rauscher said his institutional clients were not getting panicky about the market's behavior. "I talk to clients. I hear what they're telling me. Nobody I speak with is really bullish. But on the other hand, there are few people I've spoken to in the last couple of weeks that are truly bearish. Nobody's telling me: 'Look, I'm scared to hell of this market. I'm on the sidelines, and I'm scared," said Rauscher.

Rauscher said on Friday that the "Geithner" rally did not change his bearish view. In an interview Thursday, he had speculated the market could move higher in Friday's session, and he was right. "The real test is what happens next week," noting that the market has had a hard time staging multi-day rallies.

Questions? Comments? marketinsider@cnbc.com

President-elect Barack Obama is moving to fill what Wall Street has been fearing was a dangerous "void." NBC News reports that the president-elect will name the New York Fed's Tim Geithner to the post of Treasury Secretary and name other members of his economic team.

These moves will hopefully start to give shape to the new Administration's economic policies and position it to start tackling the financial crises. There's some who have been saying that if the economy falls into an even deeper trough, you could lay the blame squarely on Washington.

Since before the election, economists have been worried the economy could get worse during the void—the period between election day and the inauguration of President-elect Barack Obama in January. Now, with Congress still uncertain over what to do for the ailing auto industry; no sign of a stimulus package until early next year, and as yet unformed economic policies from the Obama Administration, it would be fair to think they are reassessing their expectations.

Goldman Sachs , for one, said today it was cutting its fourth quarter forecast for GDP because of inactivity during the "void." It now sees GDP contracting at an annual rate of 5 percent, from its previous estimate of a decline of 3.5 percent. Goldman economists say they adjusted their forecast because of falling demand in the U.S. and internationally as well as a deteriorating labor picture. But the main reason for the change—"an apparent impasse in fiscal policy pending the transfer of power to the Obama administration in late January."

The "void" bridges what economists expect to be the two darkest quarters of the current recession, and the deeper the trough, the longer the recovery. Goldman economists had expected a 2 percent decline in the first quarter , but now they see that number falling to 3 percent. They also see a second quarter decline of 1 percent, where they had been previously flat. The second half of 2009 should show growth of 1 percent, just slightly lower than their previous expectation.

"Although persistent downside surprises are a major driver of the current-quarter adjustment, the main reason for the downgrade to our forecast is the policy impasse that has developed in Washington and the tightening in financial conditions it has provoked," they wrote. "It is now reasonably clear that a second fiscal package will not be enacted until after the Obama administration takes office in late January. Other potential measures of support—deployment of TARP funds and more aggressive expansion by the GSEs, for example—likewise await the transfer of power."

They also expect the employment situation to worsen, and they raised their unemployment forecast to 9 percent from a previous 8 percent by the end of 2009, with even greater increases in 2010. "This forecast, if correct, makes the current recession unequivocally the worst single downturn on record since World War II in so far as increases in joblessness are concerned," they wrote.

The weakening in real activity and slowing inflation also affected their profit forecast. They took their forecast from a drop of 20 percent for 2009 to a decline of 25 percent, the biggest drop since 1938.

The economists say they expect the next round of stimulus to exceed the $200 billion they have included in their assumptions, but they have not altered their forecast because the size and timing are still uncertain.

While the economists did not address this, there had been concern that the lack of an Obama Administration Treasury Secretary nominee was creating more uncertainty around the government's efforts to bailout the financial system.

• Wall Street Cheers Choice Of Geithner for Treasury
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The news of Geithner's nomination may help combat that. It certainly sparked a strong rally in stocks, taking the Dow up 494, to 8046. "I think he's a terrific appointment from everything that I know about him," said Hatzius. "Clearly he's somebody who understands the financial crisis very well from his experience with the Asian crisis and he's somebody who's been intimately involved with policy over the last couple of years."

Treasury Secretary Hank Paulson has said he will not request any more funds from the TARP (Troubled Asset Relief Program). He also sent shock waves through the markets when he said last week that the mission of the TARP has changed to inject capital into institutions, not to buy troubled assets from them. Just look at the trashing financial stocks have taken since those comments were made.

Citigroup is probably the most shocking example. It is trading below $4 a share. Citigroup has lost more than 70 percent of its value since it received $25 billion from the TARP on October 29. It's market cap has gone from $70 billion to less than the $25 billion it received.

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Questions? Comments? marketinsider@cnbc.com

The stock market is now officially in no man's land.

Those were the words of one trader, but he certainly isn't alone in that view. Friday promises to be no less strange as options expire in equities, and credit markets continue to show new signs of frosting over.

In the credit markets Thursday, spreads for all types of securities blew out to record levels against Treasurys. Meanwhile, the flight to quality into the Treasury market took yields on T-bills to near zero, pushed the yield on the two-year below one percent for the first time since the 1950s, and took the 30-year's yield to record lows.

"I don't think people get how historic this really is," said Kevin Ferry of Cronus Futures Management.

Meanwhile, stocks were pounded Thursday with the Dow losing another 5.6 percent to 7552.29, the lowest level since March, 2003. But the action in the S&P 500 was truly frightening. The index fell through its 2002 lows, a level traders were hoping would hold.

The S&P ended the session down 6.7 percent at 752.44, a more than 11-year low. In fact, stocks in that index have been so crushed that now that more than a third of them would no longer officially qualify for membership in the index because their market cap is less than $4 billion.

For traders following technical charts, the next stop for the S&P 500 would be 700 or lower.

"I think stocks are cheap, but on emotion they're not and in the short-term, emotion will always win out over fundamentals," said Tim Smalls, head of equities trading at Execution LLC.

The Dow is now down 19 percent so for this month and off 47 percent from the high it hit in October, 2007. The S&P is down 22 percent on the month and is 52 percent from its all-time high. The Nasdaq, which fell 5 percent Thursday, is at its lowest level since March, 2003 and 54 percent below its October, 2007 high.

There is no economic data on Friday. Philadelphia Fed President Charles Plosser speaks on the financial crisis at 8:30 a.m., and Chicago Fed President Charles Evans speaks on the economic outlook at 12:40 p.m.

Financials Get Fried

Financial stocks lost 11 percent on top of Wednesday's 12 percent decline. One standout was Citigroup , which fell below $5 per share, a level that spooked an already nervous market. CNBC's Charlie Gasparino was first to report that Citi management acknowledges that it must now explore its options -- perhaps seek a merger partner or injection of capital.

This came the same day that Saudi Prince Alwaleed bin Talal said he would increase his holdings in Citigroup to 5 percent, and that he is supportive of Citi's management. That development did nothing to lift Citi's stock.

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Swirling in the same circle of fear with the crippled financials are rumblings that there are deep problems lurking in the trillion dollar commercial mortgage backed securities market. Since Treasury Secretary Hank Paulson declared last week that the TARP bailout program would not buy toxic mortgage debts, the market for these securities has deteriorated and spreads have continued to widen to record levels.

These securities are held on the books of banks and insurers. Hedge funds are also holders, and it's easy to see that they could be sellers this week. All types of credit securities are being dragged down in this latest credit market calamity, including high-yield and investment grade corporates.

"Risk is priced higher in the market than it ever has been before," said Ferry. Credit markets got into trouble because of the opposite problem: risk was priced way too low.

Investors are running into the long end of the Treasury market after buying the short end. Ferry said it would be an excellent time for the Treasury to do a snap auction, flooding the zone with new long term bonds.

Anybody Home?

More than a few investors today talked about the transition between Administrations as they bemoaned the behavior of markets. First, much focus was on the auto industry after two days of hearings and a failed effort by Congress to cobble together a plan. Now, it seems Congress will revisit the issue of a bailout bill for autos in Decemberas the clock ticks on a GM bankruptcy.

From Fast Money:

• When Will The Selling End

But the other buzz around the markets is the absence of a force that is focused on the financial system bailout. Paulson's comment that he was not going to ask for any more funds and his shift in the original intention of the TARP to capital injections has shaken confidence in the bailout. That is clearly being reflected in the behavior of financial stocks and the credit markets.

Cambridge Energy Research Chairman Daniel Yergin, expert on energy and global economics, said he thinks it will be significant for markets when a Treasury secretary is announced.

"It's hard to imagine a worse time for a crisis like this than during a Presidential transition. Right now, in Washington, there are two Administrations and neither one is in power. Never in memory has the choice of the new Treasury Secretary loomed as a new President's most important Cabinet appointment," Yergin said in a note.

Questions? Comments? marketinsider@cnbc.com

There is no joy on Wall Street, and frankly, the mood is getting worse.

On Wednesday, stocks hit a 5-1/2 year low on waves of selling stemming from a meltdown in financials. The group was down nearly 12 percent, with some big names like Citigroup at shocking lows.

At the same time, credit markets are getting dicey again, worrying traders who see no solutions to mend the ailing mortgage market.

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On Thursday, investors will be watching weekly jobless claims data, released at 8:30 a.m., and expected to come in at 505,000. The Philadelphia Fed survey is released at 10 a.m. as are leading indicators. At 2 p.m. Treasury Secretary Hank Paulson speaks on the economy at 2 p.m. at a lecture series at the Ronald Reagan Presidential Library.

Gamestop and Suntech Power report earnings ahead of the open, and Dell reports after the closing bell.

Markets Mayhem

The Dow Wednesday, skidded 427 points, or 5 percent, to 7997. The S&P 500 was down 53 points, or 6.1 percent to 806, a new intraday low. Credit markets, meanwhile, showed more signs of stress and have increasingly deteriorated since last week when Paulson said the financial bailout plan no longer intends to buy distressed mortgage securities.

That comment, and other comments from Paulson that he would not seek to use new money from the bailout fund has spooked investors who see the healing process in credit markets reversing. It also put in doubt the outlook for those bundles of toxic mortgage securities, held on the books of banks and insurers. At the same time, investors had been looking for a sign from the incoming Obama Administration on how it will handle the crisis.

As Washington focuses on a bailout of the auto industry , markets are fretting more about the financial bailout.

The Fed didn't help the mood either Wednesday when it released its forecast and minutes from its last meeting. The Fed now expects the U.S. economy to contract for as much as a year with the risk the slowdown could go on even longer. Fed officials now expect the economy to contract moderately in the second half of this year and the first half of 2009. That means the Fed now sees a recession lasting a year.

TARP-pedoed

"It feels really bad again," said Greg Peters, Morgan Stanley global head of fixed income research. "My positive leanings have really come under question in the last week, and the past couple of days."

He pegged the credit markets' decline to Paulson's reversal on what the $700 billion TARP (bailout fund) would be used for.

"Everything is so fragile ... Any level of disappointment just crushes it," he said of the markets.

"There's not going to be any real tangible solution around housing or mortgages for quite some time to come. That realization is affecting CMBX, ABX in addition to the other stuff as well. There's just a confluence in the last couple of days ... It's staggering the kind of declines we're seeing - even investment grade corporate ... high yield is trading down. Everything is trading off on it," he said.

Traders in the stock market had been particularly watching spreads widen on commercial mortgage-backed securities, where they fear a cascade of defaults.

It's no surprise that Treasury debt prices rallied, as investors moved into the safe haven securities. That pushed the two-year's yield to 1.11 percent, while the 10-year yield fell to 3.39 percent. The 30-year, meanwhile, rose three points with its yield dropping to 3.92 percent, the lowest level since 1961, according to Reuters. On the other end of the spectrum, flight to quality buying also pushed the yields on T-bills lower, with the three-month falling to 0.07 percent.

Getting Technical

The S&P 500 broke through 818, an intraday low set last week. Technicians were watching that level very closely to see if the market would find support there.

• S&P 500: Heading for a Recession or Depression?

Natixis Bleichroder technical analyst John Roque said he frankly didn't expect that level to hold. "Breaking of the support today was something we had been expecting. We think there was no support and we thought it was going to fail," he said.

Roque said his downside target on the S&P is 680. ouch. "I think that the trend is down. I think the number is reasonable. I don't know what the time frame is. We're still in a bear market," he said.

Oil Drip, Drip
Crude fell again , dropping 1.4 percent to $53.62 per barrel. The CRB index of 19 commodities fell 0.74 percent, its lowest level since September, 2003.

Questions? Comments? marketinsider@cnbc.com

Yesterday, I reported on a new study that showed even a big drop in gasoline prices has not made consumers more comfortable with spending on discretionary items. The issue is not so much whether you think gasoline below $2 a gallon is cheap, but whether you feel like you really can open your wallet for things you might not need in these uncertain times.

There's a comfort in holding onto your cash right now. But from a more macro view, it's important what we consumers think and do. The U.S. economy depends on the consumer to keep it going. So does the global economy. In fact, the American consumer is estimated to account for about 20 percent of global GDP.

Below are some thoughts from our readers, and please take the time to tell us what you think.

From Dave J.:
Gas is not cheap.......................It may be cheaper but it is not cheap..............The run up in Energy has pissed off the consumer and rightfully so......................Fix the Futures Market so this Bubble does not happen again..

From Dennis L.:
"Cheap gas...people have been scared and they are paying down debt. "

And from Utpal J. in India:
"It's a structural problem and one that respects psychology and behavior much more than mere cash in hand. Humans are not electric switches which can be turned on and off.

Besides the havoc that has happened will make US to curb their useless expenditure. and will also force the corporat(ion)s to become lean.

The percentage of margin which US corporat(ion)s make is not sustainable nor is available anywhere in this world except Europe and Japan.

World will not lend to US nor US consumer will borrow mindlessly. This will result in great savings and this savings will be deployed in countries which can generate better sustainable return.

The world will see contraction in value terms for years to come ; even if it makes up with quantity in two or three year."

Questions? Comments? marketinsider@cnbc.com

If you think the economy feels bad, by the end of the fourth quarter it could get downright depressing based on the worst case scenarios some economists are kicking around. But hopefully, we won't see those worst cases, and anything less could be a relief.

Goldman Sachs economists did an exercise where they set some very negative forecasts against the fourth quarter to see just what worst case GDP might look like. Their current forecast is for a decline of 3.5 percent in annualized "growth," but in a "just awful" environment they get to minus 6 percent. Worst case? That would be a 7.8 percent decline.

They have not changed their own outlook, but say they have begun to wonder if there could be a bigger decline then they've predicted, they said in a note this week.

"For the pessimistic but plausible -6 percent scenario to become a reality, we would need to see some very bad numbers over the next several weeks; in some sectors of the economy, a further acceleration in the pace of decline - and/or significant downward revisions to already-reported numbers," they wrote in a note.

To get to that number, the economists said it might take a nasty combination of declines in real consumer spending of 0.5 per cent per month (the likely rate for October and consistent with retail sales declines of 2 percent or more); residential construction outlays falling 3 percent a month; nondefense capital goods shipments slumping 1.2 percent per month, and a considerable decline in government spending. There would also have to be a lack of support from trade.

Deutsche Bank chief U.S. economist Joseph LaVorgna was also crunching numbers this week and he says he came up with a worst case scenario for GDP to shrink by 8 percent in the fourth quarter after the third quarter's decline of 0.3 percent. His forecast though is for a 4.5 percent decline.

Shrinking 8 percent?
"It's definitely possible. The bulk of it is likely to be capital spending and inventories. Consumer spending will be down again," said LaVorgna. In a note, he wrote: "The primary reason we have not shifted to that extreme view, at least not as of yet, is due to a projected collapse in inflation this quarter, led by what we expect to be at least a 0.6 percent decline in October headline CPI and a roughly 4 percent decline this quarter compared to a nearly 7 percent increase last quarter."

• Consumer Prices Take Record Drop in October

In his note, he said "the current credit shock bears some rough similarities to the imposition of credit controls in Q2 1980 when the economy shrank by 8 percent."

He said Tuesday's NAHB homebuilders sentiment index, which fell to a new low, suggests housing activity will weaken even further from current record lows. "We are even more worried about what happens beyond the current quarter, especially if the Big 3 auto makers ultimately will file for bankruptcy. If this occurs, the impact on the economy could be catastrophic."

• Big Three: Give Congress A Reason To Buy Bailout—And Fast

For now, his forecast is that the first quarter declines 1 percent, but that number of course could change. "A big part of it is if you don't get the inventory drag in the fourth quarter, you get it in the first quarter," he said.

Questions? Comments? marketinsider@cnbc.com

Consumer inflation data, more retailers' earnings, and another day of auto executives on Capitol Hill are on tap for Wednesday.

Stocks perked up ahead of Tuesday's close as buy programs swept the market after a volatile day. The Dow was up 151, or 1.8 percent, its third gain in 10 sessions, and the S&P 500 rose 8, nearly 1 percent to 859. But this was not without a roller coaster ride for the Dow which moved more than 300 points, and was deep in negative territory.

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"It's a tug of war with the awful economic news we're getting," said Robert Harrington, head of the block desk at UBS.

"We got a little reprieve with Hewlett Packard, and energy acted a little better," he said of Tuesday's market. Hewlett Packard gave a surprisingly bullish earnings preview before the opening bell. Its stock jumped 14.5 percent, and the information technology sector rose nearly 2 percent. Energy stocks were the best performers, gaining 3.3 percent.

Harrington said the stock market was rattled during the day Tuesday by dislocation in the commercial mortgage market. Treasury Secretary Hank Paulson's comments last week that the financial bailout no longer planned to buy troubled mortgage securities has caused investors to recalculate positions in that market. Also, Credit Suisse reportedly issued a report warning that two loans in a debt deal sold this year are at risk of default, adding to fears of weakness in the market.

Look Ahead

For Wednesday, traders are watching the CPI, consumer level inflation data, reported at 8:30 a.m. The PPI, reported Tuesday, fell by a record 2.8 percent last month, exceeding expectations of a 1.8 percent decline. Consumer prices are expected to fall 0.8 percent in October. Other important economic news Wednesday includes housing starts and building permits, also at 8:30. The minutes of the last Fed meeting are released at 2 p.m.

Auto Blues

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Executives of the Big Three auto makers, grilled by a Senate panel Tuesday, return to Congress to plead their case before the House Financial Services Committee at 10 a.m. Votes on a possible bailout for the automakers could come by Thursday.

Fed speakers include Fed Vice Chairman Donald Kohn who speaks on monetary policy and asset prices at the Cato institute's Monetary Policy conference in Washington at 9 a.m. Richmond Fed President Jeffrey Lacker speaks at 1:30 p.m. at the same conference on lessons from the subprime crisis.

Even cheap gasoline isn't enough to fuel consumer spending. In a recent consumer survey, 76 percent said they were not willing to spend more for non-essential goods and services even with a more than dollar per gallon decline in the price of gasoline in the last month.

Since mid-September, as news of the financial crises worsened, the U.S. consumer has been on a spending strike.

The survey, conducted late last week for the International Council of Shopping Centers and Goldman Sachs, shows that dropping gasoline prices spurred spending only modestly. Twenty-three percent of consumers did say they would spend more on things like consumer electronics, restaurants, apparel and jewelry. Yet, only 9 percent of the 1,000 questioned said they would spend considerably more.

Store sales data backs this up. For the first time in five years, the ICSC-Goldman Sachs weekly chain store sales snap shot shows that weekly chain store sales fell on a year-over-year basis. Sales, for the week ending Nov. 15, declined 0.1 percent compared to last year, and a slight 0.3 percent gain compared to the week earlier.

And of course, most retailers reporting earnings this week have shown that things are not good as the holiday season gets underway and are not likely to get better in the near future. Saks today posted a worse than expected loss even as it slashes prices to attract shoppers to its upscale stores. The company's CEO described consumers as being in "frozen mode," and Saks says it is not adverse to closing stores.

Wal-Mart US CEO Eduardo Castro-Wright, speaking at a Morgan Stanley conference, said that chain's traffic has actually been helped by falling gasoline prices. He said as gas prices rose this year, shoppers cut back on trips to rural stores, but as prices fell in October traffic increased to rural and urban stores. But Wal-Mart is one of the bright spots in the retail sector.

"One would think that you would get some lift from gasoline prices, but we argue that it's really offset by the contraction in employment," said Michael Niemira, ICSC chief economist.

"We're still in a pretty deep hole, and it will take a while to come out of it," he said. "The issue is whether this is the low or whether there is more downside."

For November, Niemira expects chain store sales to fall by 1 percent, but he said the comparisons for December get better. That, in part, is because Thanksgiving is so late in November this year. For December, he says comparisons could improve to a 1.5 to 2 percent increase.

One factor that is helping the picture is the strength of Wal-Mart. Wal-Mart in October saw same store sales rise 2.4 percent, better than the 1.6 percent increase expected. But many store chains saw double digit declines.

"We're still locked in that kind of pattern definitely for November. The Arithmetic is awful for November. A lot of the apparel and department stores will see big declines, anything from 5 percent to double digits," he said. "November is likely to be down 1 percent but it's worse beneath the surface. The only number it's not worse in the aggregate number is Wal-Mart," he said.

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Questions? Comments? marketinsider@cnbc.com