"GE's miss has everybody spooked that earnings season may well be a disaster," said Art Hogan, chief market strategist at Jefferies & Co.
After flirting in positive territory earlier on, the Dow Jones Industrial Average fell 17.75 points to 12,307.67, with 18 of its 30 components trading lower.
Blue-chip losses were fronted by financials, with Bank of America Corp. off 3%, American Express Co. off 2.2%, and Citigroup Inc. down 4.6%.
The S&P 500 shed 5.31 points at 1,331.69, while the Nasdaq Composite was down 11.29 points to 2,278.95.
Financials led declines on the S&P, with the sector off 1.6%, followed by consumer discretionary, off 0.5%, and health care, down 0.2%.
The energy sector fronted gains, up 2, while telecommunications and industrials both edged up around 0.3%.
Volume on the New York Stock Exchange topped 1.2 billion, with declining stocks outpacing advancers more than 4 to 3. On the Nasdaq, 565 million shares traded hands, and declining stocks bested those advancing 3 to 2.
In another sign of trouble in the embattled financial sector, Wachovia Corp. said it would raise $7 billion in capital and slash its dividend after posting a $350 million first-quarter loss. .
"Wachovia's not great news, but it certainly shouldn't catch us by surprise -- we know what business they're in," said Hogan.
Shares of Circuit City Stores Inc. rose 30% after the consumer-electronics retailer said it is reviewing a take-out offer of at least $6 a share from Blockbuster Inc. . .
Blockbuster shares fell 11%.
Hogan likened the proposed merger as akin to "two drunks trying to hold each other up."
Philips Electronics N.V. slid 2.3% after the Dutch conglomerate reported a 75% drop in first-quarter profit. .
Ahead of the opening bell, U.S. stock futures trimmed their losses after the Commerce Department reported a slight rise in March retail sales, topping the flat expectations of analysts. .
"This report highlights that the consumer is facing a number of strains from higher energy prices to a weakening labor market," said Lehman Brothers economist Drew Matus in a research note.
Other economic data Monday had U.S. business inventories rising 0.6% in February from a revised 0.9% increase in January. .
On the New York Mercantile Exchange, crude-oil futures were recently up $1.23 at $111.37 a barrel, after rising to an intraday high of $111.79 a barrel earlier on. .
Elsewhere on the NYME, gold futures advanced $5.8 to $929.4 an ounce. .
In overseas trade, European shares fell for the fifth straight session. .
Asian markets also declined, with Shanghai-listed shares the hardest hit. .
On Friday, Wall Street took its largest hit in three weeks after bellwether General Electric Co. surprised investors by reporting a 6% profit drop in the first quarter, and lowered its forecast for the rest of the year.
By Kate Gibson