Credit Suisse First Boston banking analyst Joan S. Solotar cut second-quarter earnings estimates for Goldman Sachs Group on Tuesday, noting that the quarter, which ends May 31 for Goldman, could be a low point for the New York investment bank.
Ms. Solotar slashed 12 cents from her earnings estimate for Goldman, to $1.14 per share, and wrote in a research note that she expects the period to be its low point this year. 
In anticipation of a possible pickup in underwriting, trading, and asset management, however, Ms. Solotar trimmed only 12 cents from her outlook for the full year, to $5.89, meaning that all of Goldman's woes should be absorbed this quarter. "Goldman's strong showing in the first quarter makes it more vulnerable in the current period," she wrote.
Ms. Solotar also reduced her earnings estimates for Morgan Stanley Dean Witter & Co., which also reports second-quarter results at the end of May, by 10 cents, to 83 cents per share, and by 10 cents for the year, to $4.13.
Analysts said that because of the way their fiscal year is structured, investment banks such as Goldman Sachs and Morgan Stanley have less time in the quarter to make up for the sluggish activity in capital markets in recent months.
Despite her reduced estimates, Ms. Solotar maintained "strong buy" ratings for both Goldman Sachs and Morgan Stanley.
On an overall up day for financials, Goldman Sachs' stock rose 1.7% Tuesday. Morgan Stanley's stock rose 0.9%.
The American Banker index of the top 225 banks increased 1.5%, and the index of the top 50 banks inched up 0.9%.
The Dow Jones industrial average rose Tuesday 1.5%, and the Nasdaq rose 2.5%.
Conversely, Ms. Solotar maintained second-quarter estimates for Lehman Brothers and Bear, Stearns & Co. at $1.29 and $1.33, respectively. In her research note she wrote that, unlike Goldman, Lehman and Bear Stearns have already seen a significant decline in investment banking fees, which reduces the impact of the lethargic markets on their stocks. Both companies report later this month.
Narrowing credit spreads, positive equity flows - which could lead to a pickup in underwriting, asset management, and trading - and expense reduction plans should lift earnings for investment banks in the second half, she said.
The positive performance of investment bank stocks in April, despite declining expectations for second-quarter earnings, "follows the pattern of previous Fed easing cycles - anticipating the impact ahead of visibility," Ms. Solotar wrote, alluding to the last rate cut by the Federal Reserve, in April.
"As in past Fed easing cycles, investors are looking past near-term results" toward a better second half, she wrote.
The valuations of investment banks "are not cheap," she wrote, and warned investors to "wait for a better entry point to become more aggressive."
Other analysts agreed with Ms. Solotar's outlook. "My premise is that the second quarter is going to be the worst of the year" for investment banks, said Diana Yates, an analyst at A.G. Edwards & Sons. She said she is in the process of cutting her estimates for Goldman Sachs, Morgan Stanley, and others, because there is downward pressure on the group overall.
Guy Moszkowski, a bank analyst at Salomon Smith Barney, lowered his yearend estimates for Goldman Sachs by 10 cents, to $5.40, on April 18.
He wrote that the firm's completed merger and acquisition activity has declined 30% and its equity deals are down at least 50%, and that it might take a hit from its private-equity portfolio during the second quarter.
These trends may be turning around, but they are not rebounding quickly enough for Goldman Sachs to achieve the analyst consensus of $1.30, Mr. Moszkowski wrote.
