It's not exactly a tale of two markets or a bull-and-bear face-off, but investors still have enough to think about after the market's recent volatility.

UBS ( UBS ) on Monday advised clients to decrease the equity weighting in their portfolios, while rival Lehman Brothers ( LEH ) said U.S equities are about 40% undervalued compared with bonds, though Lehman did not adjust its asset allocation.

Gary Gordon, a U.S. equity strategist at UBS, reduced his recommended weighting of stocks to 60% from 70%. He based his recommendation on valuation and last Friday's payroll numbers, which he says may "contain more bad news than good news for stocks." The firm lifted its cash weighting to 20% from 10% and kept its bond weighting at 20%.

On the valuation front, Gordon says the potential upside to his 1200 fair-market value for the S&P 500 suggests only "normal" returns. UBS says its global benchmark weighting for equities is 55% when returns are characterized as "normal."

"We see a risk of earnings disappointment by next year," writes Gordon. "For example, bottom-up estimates for S&P 500 2005 earnings are over $70, while we forecast $66."

Gordon says the strong March employment data was a net negative for stocks, as the specter of higher interest rates outweighs the benefit of additional jobs.

Meanwhile, Lehman Brothers portfolio strategist Henry Chip Dickson said that the U.S. equity market is about 40% undervalued vs. the bond market.

Dickson says stocks are undervalued because of "the market's concern about geopolitical risk, the uncertainty that elections bring (including potential changes in tax policy) and the sustainability of the economic recovery."

Dickson, however, kept the firm's U.S. equity strategy allocation in his report. Lehman's allocation remains 70% equities, 27% bonds and 3% cash.

Lehman's 12-month price target for the S&P 500 is 1225, on the basis of a 2004 earnings forecast of $61.75 per share. Like UBS, Lehman estimates 2005 earnings for the S&P 500 to come in at $66 per share.

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