I've been thinking about this for a few days. I'm looking for insight from redditors who might know.
Google Ai's answer was the following:
*Yes, it is theoretically and mechanically possible to use index futures to prop up the broader US stock market and this idea has long been discussed in the context of potential government or institutional market intervention. Because index futures are highly leveraged and closely linked to the underlying stock index, they are a generally more efficient tool than buying individual stocks directly, although actions on a large enough scale would leave a clear electronic record.*
*The mechanism relies on arbitrage. If a large buyer pushes index futures prices above the value implied by the underlying stocks, high frequency and institutional arbitrage traders typically respond by selling the futures and buying the consitutent stocks to capture the price difference. That buying pressure can lift the underlying index, while leverage allows a relatively small amount of capital posted as margin to control a much larger amount of market exposure.*
***"The Plunge Protection Team"***
*During Ronald Reagan's term, after the 1987 Black Monday crash, they created a blueprint for intervention, with former Fed Reserve Board member Robert Heller explaining that instead of flooding the system with liquidity during a crash, the Fed could just purchase stock index futures. Or, they could also direct major Wall Street primary dealer banks to aggressively buy stock index futures during extended overnight trading sessions. \~ from Investopedia and Wikipedia*
"**The** ***US Federal Reserve is actively conducting Reserve Management Purchases of short-term Treasury bills*** ***at $10 billion/month to maintain "ample" cash reserves across the banking system and to stabilize short-term funding markets"*** *\~The Federal Reserve*
I am wondering about this because last Friday, when the US stock market was closed for their national holiday, the futures market was showing kind of negative for all US indexes, and slightly positive for S&P/TSX. But by (Green) Monday, things were quite different. Is it possible that the current administration is involved in plugging a leaky bubble?
And if so, what are the implications?