"We're looking at comparing same store sales against last year which was pretty much a dive off the cliff," said Erin Armendinger, managing director of Jay H. Baker Retailing Initiative at the University of Pennsylvania's Wharton School. Armendinger said there typically is not really that much correlation between October and sales for the holiday, but both periods should have easy comparisons.

"It'll be flat or up 1 or 2 percent. It's not going to be a great holiday season. Retailers are in a better position than last year," she said.

Armendinger said in the past year stores have been differentiating themselves between those that not only trimmed costs but also merchandised correctly for the new consumer attitude. "I think people have realized it's got to be exactly the right product and the exactly right experience in the stores, and the right style and right amount with the right sales attached to it. It's getting way worse for some companies, and then there are those that have gotten it,"  she said.

Ralph Lauren and Tiffany are in the latter group. "We know the wheels are moving in the economy again, but unemployment is almost 10 percent. the Dow looks good, so I think luxury will make a little bit faster comeback than 'mass' will. At the high end of the market, it wasn't about not having the money. It was about not spending," she said.

The pickup in retail this year may also have a temporary impact on employment. "Retailers were forced to do really deep layoffs last year, and I think typically in the holiday season, there's as huge seasonal work force, and they'll probably need it this year where as last year they didn't and the actually got rid of full time employees. Everybody is better able to predict the future this year than they were last year," Wharton said.

Thomson Reuters says the best performing group in October is expected to be drug stores, with sales up 3.4 percent, followed by apparel, up 2.7 percent and discount, up 2.2 percent. Department stores are expected to have had flat sales in October, an teen and children's apparel is likely down 3.2 percent.

Some of the better performers should be Costco, up 5.8 percent, TJX, up 10.1 percent,  and Kohl's, up 6.2 percent.

Referendum or Not?

Traders said Tuesday's high profile Republican victories -- against N.J. Gov. Jon Corzine and in Virginia's gubernatorial race -- were a referendum against President Obama and Congressional Democrats.   

"It's not a vote against Obama health care," said Daniel Clifton, head of policy research at Strategas. "There's something going on in the electorate, and it's hit the breaking point. It's really about jobs and spending."

Clifton said the vote was not directly about the health care proposals, but the vote makes it clear the health care package does need to get smaller and be less costly. "Meaning tax increases are not going to fly in this environment," he said.

"Is this a referendum on Obama? No, this is a referendum on the economy. This isn't about Republican or Democrat...What we've been telling our clients for months is that this is the most severe anti incumbent environment we've ever seen," he said.

Traders though say the market perception was that the Republican victories spell trouble for health care reform. Health care stocks were the market's best performer, bolstered by this belief and also buying in the group spurred by the merger of Schering-Plough into Merck.

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