A resurgent Dow Jones Industrial Average is rapidly approaching the historic 20,000 mark, finishing Friday at 19,756 following another week of postelection gains that included its 23rd record close of 2016 and a 3.1% rise in the five sessions. The venerable index, which took its current form in 1896, now stands just over 1% away from 20,000 and could hit it soon.

The Dow industrials have risen 8% since Donald J. Trump’s surprise election victory on Nov. 8 and are up 13% for the year, topping both the Standard & Poor’s 500 index and the Nasdaq, NDAQ 0.24774118332847567% Nasdaq Inc. U.S.: Nasdaq USD68.79 0.17 0.24774118332847567% /Date(1481580000152-0600)/ Volume (Delayed 15m) : 786590 AFTER HOURS USD68.79 % Volume (Delayed 15m) : 9459 P/E Ratio 24.13684210526316 Market Cap 11336230514.7788 Dividend Yield 1.8607355720308185% Rev. per Employee 940377 More quote details and news » which have climbed 11% and 9%, respectively.

Powering the 30 Dow issues in the past month have been the index’s four financial stocks, Goldman Sachs Group GS -1.9350837295844532% Goldman Sachs Group Inc. U.S.: NYSE USD237.17 -4.68 -1.9350837295844532% /Date(1481580071304-0600)/ Volume (Delayed 15m) : 4994918 AFTER HOURS USD236.66 -0.51 -0.21503562845216512% Volume (Delayed 15m) : 27120 P/E Ratio 18.89800796812749 Market Cap 96171409888.6047 Dividend Yield 1.0962600666188809% Rev. per Employee 959701 More quote details and news » (ticker: GS), JPMorgan Chase JPM -0.8889928646625336% JPMorgan Chase & Co. U.S.: NYSE USD84.73 -0.76 -0.8889928646625336% /Date(1481580006734-0600)/ Volume (Delayed 15m) : 14130588 AFTER HOURS USD84.56 -0.17 -0.20063731854124867% Volume (Delayed 15m) : 380744 P/E Ratio 14.608620689655172 Market Cap 305905774536.179 Dividend Yield 2.266021479995279% Rev. per Employee 421457 More quote details and news » (JPM) American Express AXP -1.591547412063662% American Express Co. U.S.: NYSE USD73.58 -1.19 -1.591547412063662% /Date(1481580110075-0600)/ Volume (Delayed 15m) : 3598261 AFTER HOURS USD73.58 % Volume (Delayed 15m) : 56686 P/E Ratio 13.046099290780141 Market Cap 68433613642.6376 Dividend Yield 1.7396031530307148% Rev. per Employee 626953 More quote details and news » (AXP), and Travelers TRV 1.443074083396258% Travelers Cos. Inc. U.S.: NYSE USD120.91 1.72 1.443074083396258% /Date(1481580240778-0600)/ Volume (Delayed 15m) : 1819203 AFTER HOURS USD120.47 -0.44 -0.3639070382929452% Volume (Delayed 15m) : 71687 P/E Ratio 12.312627291242363 Market Cap 33856991768.6377 Dividend Yield 2.2165246877843026% Rev. per Employee 878997 More quote details and news » (TRV). Goldman’s Dow-leading 33% gain since the election has accounted for about a third of the index’s total advance. The Dow’s value is calculated based on the combined prices of all 30 stocks, multiplied by 6.85, giving outsize influence to the highest-priced shares.

The rally has helped restore some luster to the Dow, which trailed the S&P 500 in six of the seven years ending in 2015 and has been long eclipsed by the S&P as a benchmark for U.S. institutional investors. “Even though money managers don’t use it much, the Dow remains familiar to the average person on the street. The majority of people know the companies in the index,” says Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

The Dow’s gain for the year has been led by Goldman Sachs, UnitedHealth Group UNH -0.3934549088183862% UnitedHealth Group Inc. U.S.: NYSE USD159.49 -0.63 -0.3934549088183862% /Date(1481580247438-0600)/ Volume (Delayed 15m) : 3434242 AFTER HOURS USD159.49 % Volume (Delayed 15m) : 37188 P/E Ratio 23.55834564254062 Market Cap 152404769910.567 Dividend Yield 1.567496394758292% Rev. per Employee 904735 More quote details and news » (UNH), and Caterpillar CAT -0.4710562127080498% Caterpillar Inc. U.S.: NYSE USD95.08 -0.45 -0.4710562127080498% /Date(1481580051619-0600)/ Volume (Delayed 15m) : 3383938 AFTER HOURS USD95 -0.08 -0.08413967185527976% Volume (Delayed 15m) : 213113 P/E Ratio 55.27906976744186 Market Cap 55892022789.2175 Dividend Yield 3.239377366428271% Rev. per Employee 378363 More quote details and news » (CAT), which together account for about 40% of the advance. One advantage of the Dow is a higher dividend yield, 2.4%, versus 2.1% for the S&P 500. All 30 Dow stocks pay dividends, compared with 418, or 84%, of the companies in the S&P.

The main exchange-traded fund for the index, the SPDR Dow Jones Industrial Average (DIA), however, remains much smaller than the leading S&P 500 ETF, the SPDR S&P 500 SPY -0.1147852191956205% SPDR S&P 500 ETF Trust U.S.: NYSE Arca 226.25 -0.26 -0.1147852191956205% /Date(1481594400003-0600)/ Volume (Delayed 15m) : 79600335 AFTER HOURS 226.19 -0.06 -0.026519337016574586% Volume (Delayed 15m) : 22415790 P/E Ratio N/A Market Cap N/A Dividend Yield 1.9130483977900552% Rev. per Employee N/A More quote details and news » (SPY). The Dow ETF holds $14 billion against $218 billion for the S&P ETF.

THERE COULD BE MORE GAINS AHEAD for the Dow in 2017 because most of its components don’t have lofty valuations. The 30 stocks trade, on average, at 18 times estimated 2016 earnings and 16 times projected 2017 profits—not excessive in a low-interest-rate environment. The index’s forward price/earnings ratio admittedly is above the average of 15 since 2000. The P/E got as low as 10 in 2011. But the S&P 500 is more expensive, fetching about 17 times projected 2017 operating earnings, reflecting a higher weighting in high-multiple growth stocks like Facebook FB -1.5959224598930482% Facebook Inc. Cl A U.S.: Nasdaq USD117.77 -1.91 -1.5959224598930482% /Date(1481580000162-0600)/ Volume (Delayed 15m) : 17579140 AFTER HOURS USD117.6 -0.17 -0.14434915513288613% Volume (Delayed 15m) : 226387 P/E Ratio 45.47104247104247 Market Cap 345495211037.239 Dividend Yield N/A Rev. per Employee 1943900 More quote details and news » (FB) and Amazon.com AMZN -1.1110243800900268% Amazon.com Inc. U.S.: Nasdaq USD760.12 -8.54 -1.1110243800900268% /Date(1481580000341-0600)/ Volume (Delayed 15m) : 2927324 AFTER HOURS USD759.36 -0.76 -0.099984213018997% Volume (Delayed 15m) : 36621 P/E Ratio 174.16767866553627 Market Cap 365241847454.011 Dividend Yield N/A Rev. per Employee 554562 More quote details and news » (AMZN). The historic P/E for the S&P 500 is around 16. Another reason that the Dow’s rally may have legs is its heavy weighting in industrial and financial stocks, which together make up 38% of the index, compared with 25% of the S&P 500.

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The Dow may end up being the index to own during Trump’s presidency. The president-elect’s proposals to cut regulation and stimulate economic growth could disproportionately benefit manufacturing and financial companies at the expense of more-defensive and interest-rate-sensitive consumer, drug, and utility stocks, which are underrepresented in the Dow.

Barron’s highlighted the allure of three Dow components— Apple AAPL -0.5704256252742431% Apple Inc. U.S.: Nasdaq USD113.3 -0.65 -0.5704256252742431% /Date(1481580000105-0600)/ Volume (Delayed 15m) : 25979697 AFTER HOURS USD113.13 -0.17 -0.1500441306266549% Volume (Delayed 15m) : 394680 P/E Ratio 13.70012091898428 Market Cap 607617048741.721 Dividend Yield 2.0123565754633717% Rev. per Employee 1846780 More quote details and news » (AAPL), Walt Disney DIS -0.7629219912263971% Walt Disney Co. U.S.: NYSE USD104.06 -0.8 -0.7629219912263971% /Date(1481580085355-0600)/ Volume (Delayed 15m) : 7598715 AFTER HOURS USD104.05 -0.01 -0.009609840476648087% Volume (Delayed 15m) : 281486 P/E Ratio 18.192307692307693 Market Cap 166880607677.894 Dividend Yield 1.4991351143571017% Rev. per Employee 283938 More quote details and news » (DIS), and Merck (MRK)—in our “Top 10 Stock Picks for 2017” article, which ran last week. Other Dow stocks look appealing, including American Express, Intel INTC 0.587248322147651% Intel Corp. U.S.: Nasdaq USD35.97 0.21 0.587248322147651% /Date(1481580000124-0600)/ Volume (Delayed 15m) : 21804723 AFTER HOURS USD35.97 % Volume (Delayed 15m) : 181107 P/E Ratio 16.96698113207547 Market Cap 169466632045.746 Dividend Yield 2.891298304142341% Rev. per Employee 539860 More quote details and news » (INTC), Pfizer PFE 2.2082018927444795% Pfizer Inc. U.S.: NYSE USD32.4 0.7 2.2082018927444795% /Date(1481580023788-0600)/ Volume (Delayed 15m) : 31325175 AFTER HOURS USD32.45 0.05 0.15432098765432098% Volume (Delayed 15m) : 930525 P/E Ratio 32.23880597014925 Market Cap 192366857510.647 Dividend Yield 3.950617283950617% Rev. per Employee 543861 More quote details and news » (PFE), Travelers, and Verizon Communications VZ 0.5243736647892795% Verizon Communications Inc. U.S.: NYSE USD51.76 0.27 0.5243736647892795% /Date(1481580010368-0600)/ Volume (Delayed 15m) : 16037520 AFTER HOURS USD51.75 -0.01 -0.019319938176197836% Volume (Delayed 15m) : 148898 P/E Ratio 15.046511627906977 Market Cap 209905893212.124 Dividend Yield 4.4629057187017% Rev. per Employee 719719 More quote details and news » (VZ). These five all trade for an undemanding 12 to 13 times projected 2017 earnings.

IT’S RARE TO SEE American Express—with its combination of a still-powerful brand, valuable payments network, and high returns—trading at a lower P/E than many banks. Pfizer has been down lately, along with the drug sector, and now yields almost 4%. Even with drug pricing pressure and an unspectacular product pipeline, Pfizer may be capable of mid- to high-single-digit annual earnings growth in the coming years. (The company was the subject of a favorable Nov. 30 article, “Pfizer: Easy to Swallow With Low P/E, 3.8% Yield,” on Barrons.com.)

Verizon has given back much of its early-year gains and now yields 4.5%. Intel remains dominant in semiconductors and offers 2.9%. A leader in property and casualty insurance, Travelers has a history of generous capital returns to shareholders. It has retired almost 60% of its stock in the past 10 years through buybacks.

Some of the Dow’s 2017 laggards have gotten more appealing, including Visa V -0.8086934546373515% VISA Inc. Cl A U.S.: NYSE USD78.5 -0.64 -0.8086934546373515% /Date(1481580166813-0600)/ Volume (Delayed 15m) : 9528315 AFTER HOURS USD78.5 % Volume (Delayed 15m) : 2413937 P/E Ratio 28.51124105618712 Market Cap 185141266430.103 Dividend Yield 0.8407643312101911% Rev. per Employee N/A More quote details and news » (V) and Home Depot HD 0.8921208486393283% Home Depot Inc. U.S.: NYSE USD134.58 1.19 0.8921208486393283% /Date(1481580029218-0600)/ Volume (Delayed 15m) : 6248107 AFTER HOURS USD134.6 0.02 0.01486104919007282% Volume (Delayed 15m) : 28350 P/E Ratio 21.776699029126213 Market Cap 162490496479.394 Dividend Yield 2.050824788230049% Rev. per Employee 242514 More quote details and news » (HD). Visa, which is up just 2% this year, has one of the better growth outlooks among large-cap financials as it capitalizes on the continuing shift toward credit cards and electronic payments. At $79, it trades for around 24 times projected earnings in its fiscal year ending in September. Its expected annual profit growth in the next few years exceeds 15%.

Home Depot, also about flat this year, has seen its forward P/E contract to 18. With its leading position in home improvement, Home Depot still has a wide moat around its business that makes it more Amazon-resistant than most major retailers.

THE DOW REMAINS a quirky index that is structured like few others. Reflecting its origins in a paper-and-pencil era, the DJIA, as noted above, is calculated simply based on the stock prices of its 30 components. Each one-point change in a Dow stock results in a shift of 6.85 points in the index. Goldman now is the most important company in the Dow because it trades at $241—even though, based on market value, it’s the 40th largest U.S. company.

The price weighting is one of the main knocks against the Dow. It means the world’s most valuable company, Apple (recent price: $113), is less influential than the Dow member with the lowest stock-market capitalization, Travelers ($119). Also, the lower-priced stocks in the index— Cisco Systems CSCO 0.36593479707252163% Cisco Systems Inc. U.S.: Nasdaq USD30.17 0.11 0.36593479707252163% /Date(1481580000391-0600)/ Volume (Delayed 15m) : 16989441 AFTER HOURS USD30.12 -0.05 -0.16572754391779915% Volume (Delayed 15m) : 298370 P/E Ratio 14.366666666666667 Market Cap 150893946518.378 Dividend Yield 3.447132913490222% Rev. per Employee 663731 More quote details and news » (CSCO), Pfizer, General Electric GE 0.2517306482064191% General Electric Co. U.S.: NYSE USD31.86 0.08 0.2517306482064191% /Date(1481580044724-0600)/ Volume (Delayed 15m) : 30843578 AFTER HOURS USD31.85 -0.01 -0.031387319522912745% Volume (Delayed 15m) : 197138 P/E Ratio 24.786058814376847 Market Cap 281138269101.677 Dividend Yield 3.0131826741996233% Rev. per Employee 360294 More quote details and news » (GE), Intel, and Coca-Cola KO -0.23809523809523808% Coca-Cola Co. U.S.: NYSE USD41.9 -0.1 -0.23809523809523808% /Date(1481580010066-0600)/ Volume (Delayed 15m) : 17474330 AFTER HOURS USD41.94 0.04 0.0954653937947494% Volume (Delayed 15m) : 87570 P/E Ratio 25.393939393939394 Market Cap 181144277343.75 Dividend Yield 3.341288782816229% Rev. per Employee 341469 More quote details and news » (KO)—are largely irrelevant. GE would have to nearly triple to match the impact of Goldman on the Dow this year.

The Dow’s construction also means that a stock split—a relatively unimportant corporate event—can have a big impact. Visa went from being the index’s most important stock to an uninfluential member when it did a four-for-one split in 2015.

GE is the only component that dates to the original industrial average in 1896. Not surprisingly, the late-19th-century Dow index of 12 stocks featured industrial and commodity outfits that were then leaders of U.S. industry, including American Sugar, American Tobacco, National Lead, and U.S. Rubber.

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The original index value stood at around 40, meaning the Dow has risen almost 500-fold in 120 years. It took until 1972 for it to hit 1,000 and then another 15 years for 2,000. The index passed 10,000 in 1999 and 15,000 in 2013. If 20,000 is reached by Christmas, it would be the quickest 1,000-point move in history—a month or less—although 1,000-point changes obviously mean less now than they once did.

AMONG THE CRITIQUES of the Dow is its technology deficiency. Its most important tech issue is International Business Machines IBM -0.6125390343502282% International Business Machines Corp. U.S.: NYSE USD165.5 -1.02 -0.6125390343502282% /Date(1481580126756-0600)/ Volume (Delayed 15m) : 3370083 AFTER HOURS USD165.5 % Volume (Delayed 15m) : 22247 P/E Ratio 13.487742860868432 Market Cap 158336375410.147 Dividend Yield 3.3836858006042294% Rev. per Employee 212324 More quote details and news » (IBM), which has a larger impact than its other tech components—Cisco, Microsoft MSFT 0.32273680813296757% Microsoft Corp. U.S.: Nasdaq USD62.17 0.2 0.32273680813296757% /Date(1481580000272-0600)/ Volume (Delayed 15m) : 19826910 AFTER HOURS USD62.17 % Volume (Delayed 15m) : 371171 P/E Ratio 29.889423076923077 Market Cap 481838515560.731 Dividend Yield 2.5092488338426895% Rev. per Employee 745325 More quote details and news » (MSFT), and Intel—combined. IBM has been a big negative for the Dow, as the stock has dramatically underperformed tech and the overall market in recent years. At $166, the stock is well below its 2013 high of $215. It also isn’t representative of many of the successful and value-creating tech innovations of the past decade, like social networking and online retailing, which are essentially unrepresented in the Dow.

Thanks to the Dow’s price weighting, it’s difficult to add very high-priced stocks. Google parent Alphabet GOOGL -0.1914880474396195% Alphabet Inc. Cl A U.S.: Nasdaq USD807.9 -1.55 -0.1914880474396195% /Date(1481580000400-0600)/ Volume (Delayed 15m) : 1593211 AFTER HOURS USD807.9 % Volume (Delayed 15m) : 35390 P/E Ratio 29.56341001986995 Market Cap 549734941941.318 Dividend Yield N/A Rev. per Employee 1378090 More quote details and news » (GOOG), at $789, and Amazon, at $768, each would account for over 20% of the index. S&P Dow Jones tries to keep any component at less than a 10% weighting. Goldman is at 8%.

The S&P 500, like most indexes, is weighted by the market value of its components. Only three of the seven largest issues in the S&P 500—Apple, Alphabet, Microsoft, Berkshire Hathaway BRKA 0.7642848477496057% Berkshire Hathaway Inc. Cl B U.S.: NYSE USD166.12 1.26 0.7642848477496057% /Date(1481580066120-0600)/ Volume (Delayed 15m) : 6576000 AFTER HOURS USD165.92 -0.2 -0.12039489525644112% Volume (Delayed 15m) : 183723 P/E Ratio 17.603611431962445 Market Cap 406557773424.378 Dividend Yield N/A Rev. per Employee 657257 More quote details and news » (BRK.B), Exxon Mobil (XOM), Amazon, and Facebook—are in the Dow. And none of the DJIA’s most important stocks—Goldman, 3M MMM 0.6442937979718751% 3M Co. U.S.: NYSE USD179.64 1.15 0.6442937979718751% /Date(1481580128753-0600)/ Volume (Delayed 15m) : 2282495 AFTER HOURS USD179.54 -0.1 -0.05566688933422401% Volume (Delayed 15m) : 13595 P/E Ratio 22.624685138539043 Market Cap 107355670254.025 Dividend Yield 2.4716098864395457% Rev. per Employee 336270 More quote details and news » (MMM), UnitedHealth, Boeing BA 0.42814237331458876% Boeing Co. U.S.: NYSE USD157.16 0.67 0.42814237331458876% /Date(1481580029704-0600)/ Volume (Delayed 15m) : 3977794 AFTER HOURS USD159.5 2.34 1.4889284805293967% Volume (Delayed 15m) : 272786 P/E Ratio 23.92959376332298 Market Cap 96580313175.3504 Dividend Yield 3.614151183507254% Rev. per Employee 587720 More quote details and news » (BA) and Home Depot—crack the top 25 of the S&P 500 index.

Changes in the Dow happen infrequently, with the last shift occurring in 2015, when Apple was added and AT&T T 1.8325903912828132% AT&T Inc. U.S.: NYSE USD41.12 0.74 1.8325903912828132% /Date(1481580077483-0600)/ Volume (Delayed 15m) : 30626666 AFTER HOURS USD41.12 % Volume (Delayed 15m) : 1283483 P/E Ratio 17.46072186836518 Market Cap 247973586559.296 Dividend Yield 4.766536964980545% Rev. per Employee 583858 More quote details and news » (T) was removed. That’s by design. “It should be more stable than the S&P 500,” says David Blitzer, head of the index committee at S&P Dow Jones Indices. “It consists of large, stable blue-chip companies that may not be flashy, but are reliable.”

It would be possible to include a high-priced stock like Amazon or Alphabet in the Dow by capping its influence, but that would mean messing with a formula more than a century old. “We spent a lot of time discussing that on the committee,” Blitzer says. “Everybody thought we should keep it the way it was.” He said a change from the current point-calculation method might confuse people. (The committee consists of three members from S&P and two from Barron’s sister publication, The Wall Street Journal.)

Still, the Dow’s configuration may have contributed to its waning influence. “When I started in the business 33 years ago, the Dow Jones Industrial Average was everything. It was the index that everyone tried to outperform,” says Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. “Now it’s gone completely by the wayside in the institutional arena. Even the retail community is not as focused on it.” One reason may be the growth of passive investing among individual investors. The main passive index is the S&P 500.

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Paulsen adds that the Dow industrials haven’t reflected the growth in the technology sector in the past decade. Apple was added, but only in March 2015 after its stock had surged 20-fold in the prior decade. Apple actually has fallen 10% since its addition. Because Dow changes are infrequent, companies are typically mature by the time they make the cut. The Dow guardians delayed adding Apple until a seven-for-one split cut its share price sufficiently to prevent it from overwhelming the other 29 stocks.

WHAT STOCKS COULD be the next additions?

Berkshire Hathaway and Facebook are obvious choices, with Comcast CMCSA -0.6479481641468683% Comcast Corp. Cl A U.S.: Nasdaq USD69 -0.45 -0.6479481641468683% /Date(1481580000301-0600)/ Volume (Delayed 15m) : 7384173 AFTER HOURS USD69 % Volume (Delayed 15m) : 99354 P/E Ratio 20.234604105571847 Market Cap 166182196936.425 Dividend Yield 1.5942028985507246% Rev. per Employee 513876 More quote details and news » (CMCSA) another possibility. Berkshire’s less-exorbitant B shares, now around $164, could go into the index. Low-priced stocks probably won’t be added because they can’t influence the index. The three stocks most vulnerable to deletion probably are Travelers, Cisco, and Intel. Travelers has the smallest market value in the index, while Cisco and Intel have low prices and are less important than they were a decade ago.

There have been five shifts in this decade including Apple’s addition. Goldman, Visa, and Nike NKE -0.3480278422273782% Nike Inc. Cl B U.S.: NYSE USD51.54 -0.18 -0.3480278422273782% /Date(1481580024199-0600)/ Volume (Delayed 15m) : 11391828 AFTER HOURS USD51.51 -0.03 -0.05820721769499418% Volume (Delayed 15m) : 67713 P/E Ratio 23.216216216216218 Market Cap 86123215426.2476 Dividend Yield 1.3969732246798603% Rev. per Employee 467369 More quote details and news » (NKE) replaced Bank of America BAC -2.0788220008661757% Bank of America Corp. U.S.: NYSE USD22.61 -0.48 -2.0788220008661757% /Date(1481580016946-0600)/ Volume (Delayed 15m) : 136101819 AFTER HOURS USD22.61 % Volume (Delayed 15m) : 884141 P/E Ratio 18.849520633597333 Market Cap 233759576281.104 Dividend Yield 1.3268465280849182% Rev. per Employee 432244 More quote details and news » (BAC), Hewlett-Packard, HPQ 1.1676135818959181% HP Inc. U.S.: NYSE USD15.83 0.1827 1.1676135818959181% /Date(1481580116676-0600)/ Volume (Delayed 15m) : 12649967 AFTER HOURS USD15.83 % Volume (Delayed 15m) : 54765 P/E Ratio 11.147887323943662 Market Cap 26997622453.3031 Dividend Yield 3.3531269740998106% Rev. per Employee 168077 More quote details and news » and Alcoa in 2013, and UnitedHealth replaced Kraft Foods in 2012.

Anachronistic, quirky, and derided as it may be, the DJIA has managed to stay relevant. And if industrial and financial companies thrive in the Trump era, the Dow’s popularity could rise again, as investors find new allure in an old index. 

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