Goldman Sachs (GS) - Get Report led financial stocks on the downside today as the sector tumbled on profit worries for the June quarter.

Goldman lost 7, or 8.8%, to 73 after influential

Merrill Lynch

analyst Judah Kraushaar whipped a research curveball at the market, saying he believed Goldman's profit estimates were too aggressive. "We believe it is uncomfortable with the consensus estimate for the quarter," wrote Kraushaar, adding that "revenue streams appear to have incrementally weakened each month in the quarter."

Amid the general malaise that has gripped the market lately, the news was a particularly tough pill to swallow. The prospect of falling profits in the brokerage sector bolstered fears that the severe downturn in trading volume and investor sentiment has begun to hit the firms right where it hurts: in their revenues from underwriting fees, trading commissions and equity gains, all of which have been trending lower.

TheStreet.com

first wrote about firms' looming

tough times last weekend.

Financial stocks, and brokerages in particular, were enjoying a steady rise today, but went into a nose dive around 1:30 p.m. EDT following the news.

Merrill Lynch

(MER)

itself dropped 5.8% and

Lehman Brothers

(LEH)

lost 6.7%.

"As the

Nasdaq

has slowed down, so has volume, underwriting and private-equity gains," said Michael Ancell, senior industry analyst at

Banc of America Capital Management

in St. Louis. "Investors are much more leery of buying technology stocks. Therefore, not too many tech IPOs are getting done. Brokerages that had pretty large shares of the IPO market are now seeing the hangover," he said.

Indeed, Goldman and fellow underwriting giant

Morgan Stanley Dean Witter

(MWD)

enjoyed a hefty share of the profits that lit up Wall Street when the IPO market for tech stocks was on a tear. Now that the Nasdaq is down more than 35% from its March 10 high, "market conditions" are often cited as the cause for the slew of deals that have been yanked from the market.

"This is primarily going to affect companies who have a lot of underwriting, particularly in the tech area," said Ancell. "But there is also a secondary effect for other financial companies. Trading volume is correlated pretty well to commission revenues. If they are down, maybe it's likely some of the financial companies won't meet their estimates," he said.

While Kraushaar did not downgrade Goldman's intermediate-term neutral/long-term buy ratings, he set second-quarter EPS estimates at $1.36 but said that a more "attainable range may be in the $1.30-$1.35 area." The current nine-analyst consensus estimate from

First Call/Thomson Financial

is $1.47, an estimate Kraushaar said could be too high based on a slowdown in the level of activity in securities markets.

But Kraushaar's call was particularly noteworthy, as firms are often hesitant to speak up about flagging financial expectations for their competitors.

But two other firms also lowered Goldman's estimates, including

Sanford C. Bernstein

, which cut its estimates to $1.30 from $1.45 a share.

Bear Stearns

dropped estimates by 9 cents, to $1.33 per share for the quarter. Goldman Sachs earned $1.30 per share in the year-ago quarter.

Feeling the pain, the

American Stock Exchange Broker/Dealer Index

fell 15.4, or 3.6%, to 414.04.

"As long as the Nasdaq stays where it is, we are likely to see a lot more of these companies giving some downward guidance. If the Nasdaq turns around and rallies, things might be alright," said Ancell.