Investors have been forced to contend with a severe pullback in consumer demand and the panic that overtook the banking sector in late 2008.

Since March, stocks are up by nearly 50 percent and investors have shifted into riskier fixed-income assets as well, but whether these rallies continue will hinge on whether investors are drawn to those purchases, not whether they’re forced into it because nothing else looks attractive.

That’s how Mohamed El-Erian, chief executive at bond fund manager Pacific Investment Management Co., put it when speaking with Reuters Television earlier today. He noted that investors in longer-dated Treasuries were moving in that direction, in part because of the desire by authorities to move them away from short-dated risk.

“The question is not whether you can be pushed, but whether you can be pulled,” he said. “What makes a rally sustainable is whether you can be pulled into more risk.”

That may seem like a distinction without a difference, but the motivating factor is important to consider: When investors feel flush with liquidity and perceive opportunities for growth to be strong, they’re more likely to hold investments in riskier assets, rather than fleeing swiftly to short-dated debt that poses little risk. The push-pull argument seems to allude to the phrase, “pushing on a string,” in that there are certain things that cannot be pushed on.

With the prospects for growth muddy, many believe the stock market is due for a course correction after the post-panic run-up – and why Treasury auctions continue to draw strong demand.

El-Erian’s colleague, Bill Gross, pointed out the knotty problem facing U.S. markets in his most recent commentary, saying that “but a modern capitalistic economy based on levered financing and asset appreciation cannot thrive if its ‘return on capital’ or nominal GDP suffers such a significant shock.”

It used to be that Citigroup was one of the market’s most important stocks, if not the most important. At the nexus of the banking, securities and lending industries that benefited most from the easy-credit boom of the middle of the decade, its success as a stock mirrored the market and the economy.Somewhere around 2006, when people started to call for a breakup of the company, it was supplanted by a company even more tied to the derivative-fueled mess that masked the holes in the economic landscape – Goldman Sachs.

But Goldman continued to earn massive profits while Citigroup nearly died a painful death. Shares eventually fell to less than $1 a share, it was kicked out of the Dow and investors started to view other consumer banks as better indicators of the market’s health.

Still, there’s a chance that Citigroup may become more important once again, provided it survives (with substantial help from the government). Kevin Depew, recently writing on Minyanville.com, noted that most of Citigroup’s short-term debt has returned to spreads present before the blowup of Lehman Brothers, suggesting that bond investors believe the debt crisis has receded. He notes (using a bit of technical analysis) that “Citigroup right now might again be The Most Important Stock in the Universe.”

But one could argue it never stopped being important . It’s clearer now that those in search of a proxy for the economy, investors should have stuck with Citigroup all along. (Not that they should have stuck with owning the shares.) Its plunge came at a time when many thought a second Great Depression – or something close to it – was on the way, and its status as a ward of the state mirrors the economic situation as well: second-quarter GDP would have been worse had it not been for government spending.

Shares of the stock continue to struggle. It trades at less than $4, but the company recently saw a boost in trading volume as a result of an increase in its influence in the S&P 500. This may increase again if certain preferred shares held by the government are converted to common stock and then end up in the public’s hands.

The market can’t be blamed for ignoring Citigroup, washing their hands of it as it slumped.

But Citigroup never stopped being a bellwether for the economy. Its likely path in the next several years: slower growth, forced reduction of leverage, and government help, is the one the broad economy is likely to follow.

How do those green shoots look now?The market got all a-giddy last week after Intel (INTC.O) and Goldman Sachs (GS.N) (a barometer of nothing other than its own ability to navigate turbulent markets) posted better than expected earnings, but the latest round of earnings reports points mostly to the ability of companies to tighten their belts to anorexic levels.

The Street celebrated when Caterpillar (CAT.N) reported earnings Tuesday, but the euphoria leaked out of the early market rally when investors got a second glance. Sales looked terrible as demand has plunged. They, along with Intel, Coca-Cola (KO.N), UTX (UTX.N) and others, are all using China as a crutch right now, thanks to that country’s massive stimulus package. But building earnings strength on hopes that governments will continue to spend money isn’t a winning strategy for years to come.

Meanwhile, the second quarter is emerging as a repeat of the first – applause for better-than-expected results, even if the surprises mostly come as a result of cutting jobs. According to Brown Brothers Harriman, 105 S&P companies have reported earnings as of this morning. Just 27 have reported positive year-over-year revenue growth – but 36 have reported positive earnings growth. In addition, when financials are removed from the picture, companies, on the whole, are falling short of sales expectations, with an average miss of 0.9 percentage points, but beating earnings expectations by 9.2 percentage points.

And yet, stocks continue their winning ways, with the Nasdaq threatening to make it 11 days in a row. Some believe this increases the chance that the market will correct, and violently so, when the gains can no longer be sustained. It may take until the third quarter to find out whether we’ve got an Ethel Merman market – everything’s coming up roses – or a Lt. Hurwitz market, which just thinks it’s Ethel Merman.

Sure, things look rosy for Goldman Sachs (GS.N), but the firm hardly represents the broad U.S. economic situation, as investors are looking over a mélange of lousy data, with dribs and drabs of mildly encouraging information in the mix.

Tuesday’s retail sales figures weren’t all that great – the strength comes from auto sales and rising gasoline prices (and rising gas prices aren’t exactly great for consumers) – and Wednesday’s data on capacity utilization and energy inventories are likely to confirm the ongoing slack in the economy.

So what to make of the statements from CSX Corp. (CSX.N) chief executive Michael Ward, who told Reuters the worst of the recession has been seen? Data on capacity utilization doesn’t suggest a pick-up in demand, and the giant inventories of distillate products in various parts of the country also suggest the economy is sputtering, not chugging.

Weekly data on energy product inventories will be released Wednesday. Notably, distillate stocks – that’s diesel fuel, jet fuel and heating oil – were at 158 million barrels as of the July 3 week, or about 55 million barrels above normal. Of particular interest is the inventory of low-sulfur diesel located on the western U.S. coast. Refining production has been in decline here over the past year, but inventories have not been drawn down to any great degree.

In a strong economy, stocks would likely fall – but they’re not, despite declining refinery output, because of slack consumer demand for imports that come into Pacific ports. “If we’re not seeing a material drawdown in supply, I would think that’s indicative of weakness in overall demand in the market,” says Stephen Schork, who writes the Schork Report, an energy market newsletter. “We’re simply not manufacturing this stuff right now.”

Data on rail traffic is no more encouraging, with North American rail freight down 20 percent in the first half of the year when compared with 2008. Ward of CSX predicted that third-quarter volumes will fall by double digits, but the pace of decline will be lower than this quarter, when it reported a 21 percent drop in freight volumes. So we’re back to the second derivative again – the rate of change may be improving, but the underlying numbers are still negative. Another quarter or two, and we’ll see if the economy is picking up steam, or if Michael Ward was blowing smoke.

On some level, every quarter is a make-or-break earnings season, and maybe that’s particularly true for the midsummer earnings season, as it comes at an otherwise quiet time for the broader markets.

But as investors get ready for Alcoa’s ‘kick-off’ of earnings season (and really, Alcoa serves as a nice beginning more for its symbol’s position in the alphabet than as any barometer for earnings), there may be something to all of the fretting this time around. After all, investors endured an awful fourth quarter, where the entire S&P collectively managed to lose money on an operating basis (thanks, AIG, and Citigroup, and GM, and, um…), and a first quarter mostly notable for a slightly better performance than expected – even though earnings were down 36% from the previous year.

It’s still hard to see where the improvement is going to be, however. Earnings are expected to fall about 36% once again, and investors in recent weeks have finally cottoned to the idea that vaulting over low bars really isn’t much to get optimistic about. If the market is truly going to turn higher, it will depend on the quality of earnings, and there, some aren’t so optimistic. Mike Lewitt, president of Harch Capital Management, said, “I don’t think there’s a lot of revenue growth, just shrinkage – basically everybody is shrinking across the board and that’s what we’re seeing.”

The hope, somehow, is that consumer demand is starting to rebound, however slightly, as people get used to the new economic reality – relieved to still have a job, and ready to buy goods after putting off purchases for some time. “Many people made decisions to postpone purchases but not forego them,” said Diane Garnick, investment strategist at Invesco.

We’ll see. What may be necessary is a bit of reading between the lines when listening to conference calls. Visibility is still limited, and executives aren’t going to be eager to put forth rosy expectations when the economy remains stretched. An outbreak of brutal honesty among top execs isn’t likely, but a bit of hesitancy in describing current business decisions would say a lot.