Bank stocks will be in focus following a steep decline Friday after U.S. regulators charged Goldman Sachs Group Inc with fraud related to the sale of investments tied to subprime mortgages.
Goldman shares fell 1.7 percent to $158 in premarket trading after dropping nearly 13 percent Friday. The Select Sector SPDR Financial ETF was off 1.2 percent early Monday.
The market was priced for perfection heading into earnings season, and given the Goldman news and the fact earnings have been strong but not ahead of whisper numbers, we're probably going to get a 5 to 8 percent correction, said Burt White, chief investment officer at LPL Financial in Boston.
Questions surrounding Goldman were increasing chances of tougher financial reforms as politicians in the United States and Europe called for closer scrutiny and tighter rules for banks, which could hurt their profits.
S&P 500 futures fell 5 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures lost 49 points, and Nasdaq 100 futures dropped 4.5 points.
Citigroup Inc shares seesawed premarket after the bank posted better-than-expected quarterly results.
Initial results came out pretty good, but I think (investors are) beginning to put that in the context of an overbought market and the possibility of financial reform, White said.
The Chinese State Council told banks they would be expected to raise mortgage rates and down payment requirements in an attempt to cool down real estate speculation. The move rattled local markets, with Shanghai shares <.SSEC> off nearly 5 percent, while Hong Kong's Hang Seng <.HSI> shed 2.1 percent.
If we get runaway inflation in China and they decide to cool down, that would mean a loss of one of the big drivers of the global economic recovery, LPL Financial's White said.
Hasbro Inc added 1.1 percent at $40.30 premarket after the toymaker reported a better-than-expected quarterly profit.
Halliburton Co dropped 1.1 percent to $31.30 after the oilfield services company reported a 46 percent drop in first-quarter profit.
Eli Lilly and Co was off 2.3 percent to $35.70 after the drugmaker posted better-than-expected first-quarter profit but warned that costs from the newly passed health reform law would crimp results for the year.
International Business Machines Corp and Zions Bancorp are due to report results later Monday.
Airlines will be in the spotlight as widespread disruptions swept across European and U.S. airports due to a volcanic ash cloud that forced the cancellation of tens of thousands of flights.
Investor risk aversion stemming from the Goldman charges also hit the euro in favor of the low-yielding yen, while the U.S. dollar index <.DXY>, a gauge of the greenback against a basket of currencies, rose 0.5 percent.
U.S. data set for release Monday include the Conference Board's Leading Indicators for March, due at 10 a.m. EDT.
(Editing by Jeffrey Benkoe)