Troy Deeney's late goal earned the hosts victory at Vicarage Road, as the Blues missed the chance to close the gap on seventh place.
Everton went close through Gylfi Sigurdsson's first-half strike and header, and Keane nodded wide after the break. But it was the Hornets who snatched the points late on, much to the disappointment of Keane and his teammates.
“We lacked creativity," he said. “We got in good positions and could have caught them on the counter a few times. But it didn't quite happen for us today. All we can do is keep working hard.
“We were more solid in general but we didn't create a lot. They punished us when they got a chance.
“The lads are distraught in the changing room.
“We have no excuses – we have to do better. We know that. We had the right mentality coming into this game and we were desperate to do well and turn our away form around."