Look out Wall Street! Hillary has to go left

Hillary Clinton
Jim Young | Reuters
Hillary Clinton

Forget all the headlines that say Hillary Clinton narrowly won the Iowa caucuses. Sorry, but you don't have to be "feeling the Bern" to know that it was really a tie, and that Bernie Sanders actually had more voters show up for him across the state last night. It's a serious blow for Mrs. Clinton to fail to win a real victory in the crucial Iowa test for Democrats who want to be President of the United States. And it could end up being a serious blow for the markets too. Here's why:

Don't be fooled by anyone who says Senator Sanders is doing well for any other reason other than his message about economy. Sure, his general honesty and somewhat "messy-but-lovable older man" appearance help. But if you look at the social media feeds of his core supporters, economic anger and feelings of financial disenfranchisement rule the day. And don't be fooled by his "socialist" label. Sanders is not a socialist. As CNBC's Larry Kudlow and others have pointed out from his record and statements, Sanders is actually a communist. He remains a die-hard admirer of the old USSR and its domestic and foreign policies. And he didn't honeymoon in Sweden, he honeymooned in Moscow.

I'm still with most of the pundits who think Hillary Clinton wins the nomination in the end. That's even though I also think she very much deserves to be indicted for deliberately using a private email server to do sensitive and top secret business as Secretary of State. But I doubt the overly-politicized Department of Justice will charge her. And I also don't think Sanders has enough appeal among the crucial bloc of minority Democrats to win the key primaries coming up after New Hampshire. But a lot of the Clinton game plan included a very easy path to the nomination, and anything that makes that path harder will sap her crucial financial and physical resources for the general election. Thus the Clinton folks are in damage control mode.

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That's why this tie in Iowa and likely clear defeat for her in New Hampshire next week should force the Clinton camp to alter its campaign strategies and message. The strategy side of things will probably include spending even more money to get out the vote on primary days. Also look for the Clinton camp to pressure more elected Democrats and liberal celebrities to publicly endorse Mrs. Clinton in the coming days. But the Clinton message will likely have to change in some way too, and that should mean a further shift to the left on the economy. Now you get why Wall Street has a reason for concern.

People I know and trust who have strong sources inside the Clinton camp tell me the campaign does not believe it can move any further to the left on the economy than it already has. They may be right from a practical point of view, as they hope to remain centrist enough for the general election. But with millions of dollars scoming to her campaign and super-PAC from financial industry donors, the chasm between her and Sanders economically is very wide in the eyes of the average Democratic primary voter. Remember, this is a man who has called for free college education for everyone and putting private health insurance and drug companies "out of business"... yet he's running neck-and-neck with the woman everyone expected to be the coronated nominee by now! And the meager attempt to paint Sanders as a pro-gun/NRA fan has fallen predictably flat. If Hillary wants to beat back the Sanders surge in time to get a couple months off before the convention, she's going to have to win over some of his followers on the economy.

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So while the former Secretary of State may not be able to make her policies any more anti-capitalist, there's a very good chance she will now be forced to feature and enhance the hostile-to-Wall Street policies she's already espoused. Expect her to talk more about the plan she announced last month to slap a new 4% tax surcharge on all Americans with adjusted gross incomes more than $2 million. Expect more attacks on Big Pharma on platforms more substantial than just Twitter, and maybe with a few more details this time on how she plans to bring drug prices down. Expect more talk and promises about raising the minimum wage.

None of that is likely to make stock investors feel very confident about the next four years. But that's the way it goes when long-held assumptions about the future come crumbling down. Whether it's the Fed or the election, Wall Street is showing the natural convulsions that come with surprise, confusion, and fear.

Commentary by Jake Novak, supervising producer of "Power Lunch." Follow him on Twitter @jakejakeny.