Investment banks are hitting some headwinds.

Goldman Sachs

(GS) - Get Report

stock was down over 1.6% in early trading Wednesday, after Merrill Lynch brokerage analyst Guy Moszkowski lowered his third-quarter earnings estimate for the Wall Street firm.

The drop in Goldman Sachs' shares weighed down other Wall Street firms in early trading.

Lehman Brothers

(LEH)

was down 57 cents, or 1%, to $63.60, and

Morgan Stanley

(MS) - Get Report

was down 38 cents to $72.05.

Moszkowski lowered his third-quarter estimates for Goldman Sachs to $2.77 a share from $3.21 a share. The Thomson Financial consensus estimate has Goldman Sachs earning $3.27 a share.

Moszkowski didn't alter his estimates for any other brokers, including Morgan Stanley, Lehman Brothers, and

Bear Stearns

(BSC)

. But he warned of difficult market conditions through the third quarter, which is normally the slowest period for Wall Street firms.

Debt and equity underwriting are declining, merger and acquisition activity is slowing and the trading environment is uncertain, Moszkowski said in the report. Goldman Sachs' merger business, one of the firm's biggest moneymakers, is slowing considerably despite the recent whirlwind of private equity activity. Moszkowski predicts Goldman Sachs' M&A business is going to slow about 35% from the same period last year

Moszkowski is also expecting equity trading to slow as a result of the tepid stock market. Given that Goldman is an equity-focused investment bank, the firm will be harder hit than its competitors.

"We are significantly lowering our third-quarter estimates ... on much lower M&A closings than we expected," he said. "As well as

on a marked downturn in trading from continued weak equity markets exacerbating the typical seasonal slowdown."