Black Monday: What is it and why is Donald Trump calling it 'medicine to fix something'

'Sometimes you have to take medicine to fix something,' Donald Trump said of the turmoil that has wiped trillions of dollars off company valuations.

Asian stock markets collapsed on Monday as China retaliated against US President Donald Trump's punishing tariffs with its own hefty tariffs, ramping up a trade war many fear could spark a recession even as countries seek to compromise with the defiant president.

Black Monday arrived as the American President defended his tariffs, saying a lot of countries are 'dying to make a deal' and any adjustment in the stock market would be temporary.

Hopes that Trump would rethink his policy in light of the turmoil were dashed Sunday when he said he would not make a deal with other countries unless trade deficits were solved. He denied that he was intentionally engineering a selloff and insisted he could not foresee market reactions.

"Sometimes you have to take medicine to fix something," he said of the disruption that has wiped trillions of dollars off company valuations.

What is Black Monday?

Black Monday was a global, severe, and largely unexpected stock market crash on Monday, October 19, 1987. Losses worldwide were estimated to be around $1.7 trillion. The crash triggered fears of a massive and extended economic instability and even a repeat of the Great Depression that lasted from 1929 to 1939. It was the worst economic crisis in US history and the most severe economic downturn in modern history.

Commenting on fears of a recession, Steve Cochrane, chief Asia-Pacific economist at Moody's Analytics, said: "We could see a recession happen very quickly in the US, and it could last through the year or so, it could be rather lengthy. And if there's a recession in the US, of course, China will feel it as well because demand for its goods will be hit even harder. Harder than they would have been hit just because of the tariffs."

On Monday, investor wealth worth Rs 16.19 lakh crore was wiped out in a matter of hours. Sensex nosedived 3,939.68 points or 5.22 percent to touch an intraday low of 71,425.01, while the NSE Nifty tanked 1,160.80 points or 5 percent to 21,743.65 — its worst opening since March 2020, at the height of the COVID-19 pandemic. This marked the sharpest single-day fall since June 4, 2024, when the indices had plunged more than 8 percent.

Risk of higher unemployment

Federal Reserve boss Jerome Powell said US tariffs will likely cause inflation to rise and growth to slow and warned of an "elevated" risk of higher unemployment. The measures by Trump are likely to give US central bankers a headache as they try to balance the need for interest rate cuts to support the economy with the need to keep a lid on prices.

His comments came after Trump insisted "my policies will never change" and urged the Fed to cut rates.

"Powell's hands are tied," said Stephen Innes at SPI Asset Management. "He's acknowledged the obvious -- that tariffs are inflationary and recessionary -- but he's not signalling a rescue. And that's the problem. This time, the Fed's inflation mandate is forcing it to keep the safety net rolled up while asset prices get torched."

He added that the market is in free-fall mode again, "punching through floors".  "Trump's team isn't blinking. The tariffs are being treated as a victory lap, not a bargaining chip," Innes said.

Tim Waterer, chief market analyst at KCM Trade, said: "Traders are nervously watching the two biggest economies going toe to toe on tariffs and are fearing that both could receive knockout blows from a prolonged economic fight.

"Neither the US nor China are backing down when it comes to slapping new tariffs on each other and in this escalatory environment it's not surprising to see that risk assets are being avoided like the plague."

(With inputs from AFP)