What Happened

Investment bank Cowen Inc. (COWN) got trounced on Monday as the stock fell as much as 16% at 1:47 p.m. ET. It rallied a little but was still down 9.8% at 3:40 p.m. ET, trading at $31.24.

All of the major benchmarks were down slightly as of afternoon trading, with the Dow Jones Industrial Average down about 223 points and the S&P 500 down about 34 points as of 3:40 p.m.

So what

The Dow was up over 300 points in early trading on Monday, driven by a strong second-quarter earnings report from investment bank Goldman Sachs (GS 0.48%), which exceeded the expectations of market analysts. 

It was a positive sign for the market, thus the initial jump. But the earnings strength came via Goldman Sachʻs trading business, while revenue in the investment banking business was down 40% year over year. It follows worse-than-expected investment banking revenue reported by Morgan Stanley (MS -0.28%) last week. 

This was not a good sign for other investment banks, as most were down on Monday. But Cowen, a middle-market player, took it harder than most.

Now what

The market will be looking forward to Cowenʻs Q2 earnings report on July 28, but given the trends we have seen with the larger firms and the slowdown in merger and acquisition (M&A) activity, the results are not expected to be much different.

One thing to look out for is possible merger talks involving Cowen itself. On July 1, Bloomberg reported that Toronto-Dominion Bank (TD -1.59%) was exploring the idea of acquiring Cowen. Cowenʻs stock price jumped from $23 per share on July 1 to over $34 per share as of July 15 on the news.