European bank stocks are on a tear. Investors who bet on the sector's recovery are seeing substantial gains following a strong second-quarter performance that delivered a 21% quarterly gain. These bank bulls now expect the momentum to continue, making financial stocks one of the most attractive trades in European markets this year.

The numbers tell a compelling story. That kind of outperformance compared to broader market indices suggests banks are capitalizing on favorable conditions. Whether driven by rising interest rates, improving credit quality, or economic recovery, the sector's strength has caught the attention of portfolio managers seeking yield in an uncertain environment.

Market sentiment appears to be shifting. The fact that investors view European bank equities as one of the region's hottest trades indicates growing confidence in the financial system's resilience. This optimism could translate into increased inflows into bank-focused funds and ETFs as investors chase performance.

The rally reflects a broader reassessment of European financial stocks. With valuations still reasonable relative to U.S. peers and dividend yields attractive, the sector offers compelling entry points for investors willing to accept the risks. Bank bulls see sustained opportunity in this trade.