Good discussion. How would oil price impact stock market? Except a few oil&gas energy-related stocks are positively correlated to oil price, I'd think majority are negatively correlated, coz lower oil price, lower logistics cost, lower bottom line, stock market should rise, no?
1) oil price has a 0.6-0.7 positive correlation with djia. Furthermore, oil price is a leading indicator to djia in this regard. This is because lower oil demand is a symptom that manufacturing has slowed. This is not a good economic sign.
But I believe this correlation will get slightly weaker as US is making the drive towards alternative energy sources eg Natural gas, nuclear power etc.
2) Highly leveraged middle oil firms have a chance of going bankrupt with worries of contagion effect.
In all, I hope what you say comes true, but the volatility stems from discerning if this oil price slump is good news. There is a lot of noise in the market making out of this pricing and HOPEFULLY, it's due to oil supply increase rather than oil demand fall.
As of now, I'm leaning towards oil supply increase from mostly reliable evidence and research.