"GE's miss has everybody spooked that earnings season may well be a disaster," said Art Hogan, chief market strategist at Jefferies & Co.
The major indexes were near flat, with the Dow Jones Industrial Average recently up 7.58 points to 12,333, with 16 of its 30 components trading higher, with Caterpillar Inc. leading the gains, its stock up 1.4%.
Blue-chip losses were fronted by financials, with Bank of America Corp. , American Express Co. and Citigroup Inc. all down more than 2%.
The S&P 500 shed 1.14 points at 1,331.69, while the Nasdaq Composite was down 3.61 points to 2,286.63.
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 923 million, with declining stocks outpacing advancers 8 to 7. On the Nasdaq, 403 million shares traded hands, and declining stocks bested those advancing 7 to 5.
On the New York Mercantile Exchange, crude and gold futures both gained, with oil futures up $1.51 at $111.65 a barrel, while the spot month for gold gained $5.8 to $929.4 an ounce.
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. .
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 33.3%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 10.2%.
Hogan likened the proposed merger as akin to "two drunks trying to hold each other up."
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