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What a day we saw yesterday in the US equity markets. Certainly, the markets were on edge based on the situation in Greece and how much of an effect it would have on the world economy. But, above and beyond that, at about 2:15 eastern time, it appears that a computerized trade, perhaps entered by a person, was erroneous and triggered an onslaught of additional computerized trading. This additional trading perpetuated even more automated trading (really, selling) and caused us to witness the most volatile day in Wall Street history. Just what we needed when investors were already on edge after several months of relative calm in our equity markets.

As I always look for and describe, what does this mean for the individual investor? First, let me display one of my strengths and state the obvious. Over the years, many clients have asked me about stop loss orders or limit orders. When we experience volatility like this, it is easy to have one of those orders executed, only to see the stock recover in a short period but you no longer own the stock. Stop losses and limit orders have their place in some portfolios with some holdings, however, one has to be aware of these possibilities.

From what I read, it appears that one of the Dow components, P&G, had experienced a 10% drop in its price at around 2pm. This triggered the slew of automatic trades and caused the NYSE, on which exchange P&P is traded, to slow trading. However, other exchanges were allowed to trade the stock and thats where an error may have occurred, showing a 37% drop in the shares. The cascade effect was to drop the Dow Industrials average by 172 points and trigger more selling. Enough of the details though; the erroneous trades will be canceled and exchange authorities continue to investigate.

What else does this mean to the individual investor? Again, from late 2008 to the middle of 2009, investors were wrought with fear. As 2009 ended and we moved into 2010, markets were calmer and therefore, investors began to feel somewhat less fearful. As we moved into spring, there were whispers that the markets may be getting ahead of themselves, but that concern was not significant. Then, the Greece news began to populate the airwaves. However, it was sporadic at best. In other words, one day the news was that Greece needed a bailout from Europe and would get one, then they wouldnt, then Europe promised not to let them fail (sound familiar?) and then Greece said we cant cut services as much as Europe demands as a condition for financial aid (sorry, dont want to use the word bailout anymore). Every day, the spin was different, but at least there was enough stability to prevent yesterday, until, well, yesterday.

Where do we go from here? As I have been doing since 2009 when adding equities to clients accounts, I will continue to do so gradually and over time, where it is appropriate for that particular client. We will continue to monitor allocations and if necessary, make adjustments, based on the agreed upon investment objective. We all can agree that yesterday was scary and that it reminds us that equities dont always go up and when we see this downside volatility, we are uneasy. If the markets had spiked up by 3% yesterday, most would not be as concerned.

In the near term, I expect downward pressure on equities as we digest the Gulf oil spill and its affect on our economy and deal with unemployment, which just ticked up to 9.9% and the continued quasi recovery in the housing market. Looking out 3-5 years, I believe we will have higher equity prices in general. You may recall that I expected a decent 2010, but not one of the best. With yesterdays drop, the major indices are not too far from where they started 2010. With the headwinds we currently face, I dont think you will see much upward movement until later in 2010.

This is a good time to review equities in your portfolios and re-examine your appetite for risk. Although we dont expect to see days like yesterday, they do occur and they are a good measuring stick for your risk tolerance. This is a topic I will be covering with clients as we approach late spring and summer.

Happy Mothers Day to whom it applies. Mothers are our grounding and the foundation upon which most lives are built and sustained. I recently read about one of the star pitchers in Major League Baseball, who with all his fame and fortune, still relies on his mom to cook for him and critique his performances. He claims that she is as important a person as there is for him. So, if a star athlete knows how important his mom is, the rest of us ought to be able to say thanks to our moms (past and present) this weekend. Thanks, Mom.