Why Stock Investors Should Cheer Plunging Oil Prices

Some people are doing an awful lot of handwringing over plunging oil prices.They shouldn't. When oil prices take a major hit, just like we've seen recently, then stock prices should surge in short order, according to detailed historical market analysis. Here's what we know for sure. Less than two months ago on October 3, the price for a barrel of Brent crude oil hit $86.29, its high for the year, according to data from Bloomberg. It subsequently retreated to $59.33 recently. That's a plunge of more than 31%.In turn, that should mean stocks will get a boost in short order, according to a study titled "Striking oil: Another puzzle?" published in the Journal of Financial Economics and authored by researchers from private bank Fortis MeesPierson; financial firm APG Investments (both in the Netherlands); and Massey University, New Zealand.The study was published in 2008 using data from 1973 through 2003 the first 30 year period of meaningfully fluctuating oil prices.The found that falling oil prices over that period got followed by rising stock prices, on average. "[A] decrease in this month’s oil price indicates a higher stock market return next month," the report states.That alone shouldn't necessarily be too surprising. Lower oil prices usually mean lower gasoline prices which in turn tends to boost consumer spending. In other words, when oil hits the skids, that's good for the economy and stocks. The authors acknowledge this truth.