Know your neighbour Following a busy month of results, strategy reviews and central bank navel-gazing, we have a good idea of what industry practitioners are thinking. But what about investors? We''ve held 100+ meetings since publishing ''X-rated'' a month ago. Frequently, we were asked ''what are others thinking?''. This report summarises the feedback and debates from those discussions. Bullish, but stock-selection is getting tougher No doubt: investors are generally bullish, citing relative valuation, capital return, benign credit and the hope that ''trough rates'' and ''peak regulation'' are behind us. Most bank investors prioritise quality and, so far, quality has worked. So far, so good: but what now? Our valuation dispersion indicator is flashing a warning light: urging rotation out of some max-ed out quality. The first section of this note deals with the question of stock-selection, which is clearly becoming more challenging. When does it end? Many investors are cyclically positive, but structurally not getting carried away, so ''timing'' is a common discussion. We''ve laid out three ''traffic-lights'' to watch: one is green (bond yields), one is green-turning-yellow (valuation) the other is red (EPS expectations). Since the latter is fundamental and anti-consensual, interest in our ''XNIM'' work has been high. We re-iterate here why the EPS implications may be meaningful but are not immediate. Near-term, banks likely have further to run. Is it different this time? Could higher loan growth, less wholesale funding, bolder deposit re-pricing or the scale of ''capital return'' cushion the margin issue? We review these common questions, partly by consulting our colleagues in Credit on the outlook for bank debt issuance. On capital return: beware that bank yields are close to falling below insurers'' yields, a bearish relative signal not to ignore in the past. Adding Lloyds to Top Picks We like quality which has lagged, and exposure to hikes....