STOCKS REBOUNDED LAST WEEK FROM their lowest level of 2010, momentarily quelling, but not dispelling, growing concerns the U.S. economy is heading toward a double-dip recession.

With both the artificial high from last year’s monetary goosing and pent-up demand fading fast, investors must decide if the economy is weathering an inevitable soft patch sprinkled with feta and imported from Europe — or something worse.

The week began ominously: The Standard & Poor’s 500 skidded Monday to 1050, its lowest close this year. The rest of the week looked a lot better, however. Some help came from China, which reported a 50% jump in exports in May. In addition, the European Central Bank raised its forecast for economic growth this year to 1% from 0.8% (although it trimmed its 2011 outlook to 1.2% from 1.5%). Drama-free auctions of government debt by Spain and Italy helped the Dow Jones Industrial Average snap its three-week losing streak; the blue chips ended the week up 279, or 2.8%, to 10,211. The S&P 500 had its best week since early March. The Nasdaq Composite Index rose 24, or 1.1%, to 2244, while the Russell 2000 gained 15, or 2.4%, to 649.

Of the many things worrying investors — Europe, China, an oilier Gulf Coast and a bossier Washington — only Europe poses systemic risk, says one Wall Street strategist. So it’s instructive that the pan-European Stoxx Europe 600 index has rebounded for the third straight week.

Because stocks are liquid and the largest asset class, and occupy the junior rung of the capital structure, they’re “most conveniently sold” when investors flee risk. But “markets cannot remain in a state of crisis forever,” says the Wall Street analyst. Stocks and corporate bonds, for instance, are both issued by the same companies, yet stocks now look cheap relative to bonds, with the gap between stocks’ earnings yield and investment-grade bond yields widening to the highest level since 1980.

An expert, who is a global head of equity strategy, thinks a double dip in the economy might be priced into the market. The MSCI World Index, for example, has retreated to 11.4 times projected profits; the multiple was lower only between October 2008 and March 2009, when the world was bracing for Armageddon.

IN HONOR OF SUMMER, HERE’S a gazpacho of trading bits:

— Technology companies have gobs of cash, and greater relevance to a thriftier future that prizes productivity, yet they weren’t spared in the correction and are down 6% this year. To take advantage of the sector’s increased volatility — and increased option premiums — bulls might screen for cash-rich companies most likely to buy back shares.  Tech companies’ cleaner balance sheets and potential buybacks might limit the severity of any stock slides (Source: Barrons Online).