A year ago, the big financial story was the rattled banking system. Now, it’s the roaring stock market — electrified by artificial intelligence and the U.S. economy. The S&P 500 is up about 32% in a year. That’s more than quadruple the 30-year average (inflation-adjusted dividends reinvested).

But can those gains be sustained? The Economist magazine has been looking at this phenomenon. Editor-in-chief Zanny Minton Beddoes joined “Marketplace Morning Report” host David Brancaccio to discuss the factors underpinning the current stellar returns, and whether or not they can last:

David Brancaccio: Well, stock market’s looking pretty good. If you look out the window, you can see some of New York’s financial industry in action. Are we getting ahead of ourselves? Is it getting a little overinflated?

Zanny Minton Beddoes: Well, look, it’s been on a tear since 2010. The S&P has returned 11% a year in real terms. So you’re thinking, “OK, this all sounds really, really frothy.” But remember what Alan Greenspan once said about irrational exuberance. I think there are actually some reasons this time why it is rational exuberance. There are some kind of underlying reasons which do make sense of this. One is that the U.S. economy — contrary to what most people were expecting — has actually achieved, it seems, that soft landing. Growth has been really quite strong. And secondly, that there are remarkable earnings in some of these companies that are underpinning this.

Brancaccio: And I want to bring this up, Zanny. I mean, the newspaper magazine you work for uses the term “a mirage” to describe the way that the markets performed over all these years.

Minton Beddoes: There are two things that have flattered earnings in the last 10 years. One is that the corporate tax rate has consistently come down. Borrowing costs became cheaper for much of those 10 years, because interest rates were at rock-bottom levels. That has now turned around, as indeed has the trajectory of corporate taxation. We did a weighted [analysis of] 142 countries and we looked at the median corporate tax rate, and in 2022 and 2023, those were the first years where it started going up again. So, if you think you’re in an environment where corporate taxes are either gonna stay the same or go up but no longer go down, and you’re in an environment where interest rates are either gonna stay the same, possibly go up but unlikely to hit those rock bottom rates again. And two of the really big underpinnings of the last decade’s returns are no longer going to be there.

Brancaccio: Alright, and that gets you to this view that the next 10 years aren’t going to be like the last 10 years.

Minton Beddoes: I’m pretty confident the next 10 years won’t be like the last 10 years. You know, you could say, “Well, AI will take a rabbit out of a hat,” but it would have to be a serious rabbit out of a hat. But that doesn’t mean that we’re gonna see a stock market crash. You can have, you know, much lower returns, a much less exciting-looking market without it being a bubble bursting.

Brancaccio: One last thing is a lot of this is here in America. I mean, Japan has had a good ride for its market, especially in the last year. Special case there perhaps, but the whole world stock market isn’t necessarily joining in in the exuberance.

Minton Beddoes: Well, China certainly isn’t. Yes, Japan has now you know — the Nikkei has reached highs again, but remember it’s been a pretty grim 30 years there. This is overwhelmingly a U.S. story. Yes, there are other parts of the world where stock markets have been doing well recently, but nothing quite as extraordinary as the kind of scale of what’s been happening in the U.S.