Stock multiples will rise as rates come down this year, says Jefferies' David Zervos

Watch on YouTube ↗  |  January 02, 2026 at 15:09  |  4:05  |  CNBC
Speakers
David Zervos — Chief Market Strategist, Jefferies

Summary

David Zervos, Jefferies chief market strategist, argues that rates have room to fall further because the market and the Fed overestimated the neutral rate after COVID. He expects a more dovish Fed, contained long-end yields, and falling inflation expectations, which should support Treasuries and help equity multiples expand.

  • Rates have already fallen across the curve, with front-end yields down nearly 100 bps and back-end down about 50 bps.
  • Zervos thinks the neutral rate is closer to 2% than 3% as the balance sheet normalizes.
  • He expects a more dovish Fed and new leadership focused on the supply side.
  • He says Treasury issuance and buybacks can keep the long end under control.
  • Inflation expectations, forward breakevens, and surveys are all declining.
  • Lower rates should drive PE multiple expansion and are great news for stocks.
Ideas
David Zervos Chief Market Strategist, Jefferies 0:44
Rates will keep falling, buy Treasuries.
He thinks rates have already fallen substantially and will continue declining because the market and Fed have overestimated the neutral rate since COVID. With the balance sheet back to neutral, he expects neutral rates to return toward pre-COVID levels closer to 2% than 3%, aided by a more dovish Fed, new Fed leadership, falling inflation expectations, and Treasury control of the long end. This supports owning U.S. Treasuries as yields fall.
TLT HIGH
David Zervos Chief Market Strategist, Jefferies 0:58
Lower rates will expand equity multiples.
Zervos is bullish on stocks because he expects rates to continue falling across the curve as the Fed becomes more dovish and the neutral rate normalizes back toward pre-COVID levels closer to 2% than 3%. Lower interest rates should support valuation multiples, with PE multiples rising, which he calls great news for stocks.
SPY HIGH
David Zervos Chief Market Strategist, Jefferies 2:55
Long-end Treasuries are controlled and attractive.
Zervos argues the long end of the bond market is under control because the Treasury is focused on it and has issuance and buyback tools to beat back bond vigilantes and foreign sellers. Even without that, inflation expectations, forward breakevens, and surveys are coming down, so long-end yields should stay contained, supporting long-end Treasuries.
Long-End U.S. Treasuries HIGH
David Zervos Chief Market Strategist, Jefferies 3:28
Inflation expectations will keep falling.
He believes inflation expectations will continue falling. He notes forward breakevens and surveys are all coming down and inflation data has gotten better, while monetary policy remains restrictive and is keeping a lid on interest-rate-sensitive sectors, keeping inflation in check and heading lower. Falling inflation expectations imply a short breakevens position.
Forward inflation breakevens MED
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This CNBC video, published January 02, 2026, features David Zervos discussing TLT, SPY, Long-End U.S. Treasuries, Forward inflation breakevens. 4 trade ideas extracted by AI with direction and confidence scoring.

Speakers: David Zervos  · Tickers: TLT, SPY, Long-End U.S. Treasuries, Forward inflation breakevens