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A warning on the world's biggest stocks from one of the biggest names on Wall Street. 

"I think it depends on what stocks — yes, the leading stocks, they're expensive," billionaire hedge fund founder Ray Dalio told me on Yahoo Finance's Opening Bid podcast (video above; listen in below). 

Dalio says the Magnificent Seven names, such as Nvidia (NVDA), Amazon (AMZN), and others, have become "so expensive."

If the 10-year yield continues to rise as Dalio expects, these top-momentum names could be hit hard.

"If you have an interest rate rise when it's relatively expensive, it's not likely to be good," Dalio said, adding, "Rotation is the important consideration."

Dalio stepped down as CEO of Bridgewater Associates in 2017 and handed over control of the firm in October 2022. His current role with the firm includes mentoring the committee that has oversight over the company's investment strategies.

The investment veteran, with an estimated net worth of $14 billion, is no stranger to making against-the-grain markets and economic calls. Some have panned out, others, not yet — if at all. 

Yahoo Finance

In an April 2022 interview, Dalio warned me about a period of stagflation —or slow growth and high inflation. That didn't exactly pan out from a growth standpoint as the world recovered from the COVID-19 pandemic. But global economies continue to grapple with elevated levels of inflation that are crimping consumer purchasing power. 

More recently, Dalio has been calling attention to the US's bloated deficit, which hit a staggering $1.8 trillion in fiscal year 2024. He shares more of his debt concerns in a new online book called "How Countries Go Broke."

Worst-case scenarios on the US debt (such as a major inflation outbreak) haven't occurred. But the markets are not ignoring the issue, with the Trump administration likely adding to debt levels by extending his signature tax cuts. 

Read more: Why TD Ameritrade's former CEO is bullish on the Trump trade

Investors are fretting over a 10-year bond yield hovering close to 5%, a rising US dollar, risk of a trade war from the Trump administration, policy uncertainty from the Fed, and pullbacks in top Mag Seven names like Nvidia.

Stocks are "priced for perfection," warned Goldman Sachs strategist Peter Oppenheimer this month.

Dalio thinks the US needs to get its debt situation in order. Since that's unlikely to happen in the near-term, Dalio said the average investor should be taking a hard look at their portfolio.

"I will say that the important thing if you're building a portfolio is to know how to have excellent diversification, to not be systematically leveraged long. Most of the world is leveraged long right now. But pay attention to this issue with how the debt goes, because it'll matter," said Dalio.

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Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on X @BrianSozzi, Instagram and on LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com. Three times each week, Sozzi fields insight-filled conversations with the biggest names in business and markets on Yahoo Finance's Opening Bid podcast. Find more episodes on our video hub. Watch on your preferred streaming service. Or listen and subscribe on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.

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