The following quote comes from research firm Trim Tabs. I am quoting it not because it is so good that I want to steal it, but rather that it's perfectly illustrative of an argument I have with bears more often than I'd like.
"As for the earnings on which Wall Street lavishes so much attention, Standard & Poor’s projects S&P 500 reported earnings will be $59 per share in 2009. To get to a forward P/E multiple of 12--a generous multiple amid the worst financial crisis in about eighty years--the S&P 500 needs to drop to about 700."
The bear argument in this case is that not only do stocks go down in bear markets because earnings estimates are reduced, but also because the multiple that investors will pay for these earnings goes down. In fact if one is looking at trailing or current year earnings, and there is effectively no chance of a company going out of business, I believe the multiple could go up at the trough of a bear market all other things being equal, as investors trust that earnings (or cash flow or dividends) will increase to a more normal level at some point in the future.
The market is smart enough to distinguish between bear market earnings declines and a permanent reduction in the value of an enterprise or at the very least will figure it out along the way. I'm nor sure whether earnings estimates are still a lot too high for financial firms. Whether they are or aren't, unless many more major banks fail, I wouldn't look for much more valuation-related downside.