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Those headlines masked the pain investors are still feeling at some of America’s smaller lenders after a cascade of panic sparked by the collapse of Silicon Valley Bank last week. Whipsaw moves contributed to the challenging trading conditions across all markets.

Despite Thursday’s rally, investors remain tense and brace for further stress stemming from the significant move away from a decade of low interest rates that has exposed hidden weaknesses in the financial system.

“Up until this week, markets had largely ignored the threats that monetary tightening was beginning to uncover,” said Seema Shah, chief global strategist at Principal Asset Management. “However, the recent turmoil has been a quick reminder to investors that risky assets simply cannot escape the wrath of monetary tightening.”

First Republic Bank, a regional lender that has caught investors’ crosshairs, shed a fifth of its value even after recovering from steeper losses after reports that major banks are ready to bail out the struggling bank.

First Republic is on track for its fifth double-digit percentage decline in six days, and has lost more than 80 percent of its value in the stock market this month, taking about $20 billion off its valuation over the period . PacWest, which operates primarily out of California, plummeted more than 14 percent.

Other banks such as Western Alliance and Zions also slipped, but by more modest single-digit amounts.

But amid growing concerns about the longer-term ramifications of last week’s events, Goldman Sachs increased its likelihood that the US economy would slide into recession over the next 12 months “due to increasing near-term uncertainty surrounding the impact of Stress at small banks.”

Energy stocks were also under pressure after oil prices fell quickly on Wednesday, sensitive to the prospect of a global slowdown that will weaken demand for the commodity. Exxon Mobil and Halliburton each lost more than 1.5 percent on Thursday. The price of a barrel of West Texas Intermediate crude, the American benchmark, has fluctuated around its lowest level since late 2021.

Broader markets appeared calmer, however, as they largely deterred a 0.5 percentage point rate hike by the European Central Bank and took comfort from a rebound in the share price of Credit Suisse, the embattled European bank, after it announced it would tap a lifeline from the Swiss central bank and borrow up to $54 billion.

Credit Suisse shares rose more than 15 percent, recouping part of the previous day’s huge loss that stoked fears for the financial health of the lender. However, other banks in the region continued to fall: Deutsche Bank fell 5 percent, Société Générale fell 1.4 percent and BNP Paribas fell 0.4 percent.

The European Central Bank stuck to its plan, raising interest rates by half a percentage point despite expectations that the central bank might balk given the ongoing pressure on banks on both sides of the Atlantic.

Central banks have hiked interest rates to curb inflation, but higher rates also mean higher costs for businesses, adding to the pain some banks have endured in recent days.

Central bankers must now balance the desire to further slow inflation with the risk of further instability in financial markets. Analysts noted that the European Central Bank’s decision gained momentum ahead of next week’s Federal Reserve meeting, and some US Treasury yields rose as investors bet the Fed would follow the ECB in raising its key interest rate next week .

Still, traders in the futures markets continued to bet the Fed will cut rates later this year as inflation continues to fall and the economy continues to deteriorate, although the Fed and its Chair, Jerome H. Powell, have said so so far have no plans to do so.

“The balance of risk has undoubtedly shifted,” noted Daleep Singh, chief global economist at PGIM Fixed Income. “The risks of tightening too much are now at least as great and probably greater than the risks of tightening too little. We expect Fed Chair Powell next week to tie a definitive rate hike to the message that Fed policy will then take an extended pause, with the possibility of resuming rate hikes later — or initiating rate cuts — in the second half of the year.”

Jin Yu Young And Vivek Shankar contributed reporting.