The Fed's decision to lower interest rates to a range of 4.50%-4.75% was met with widespread expectation. This rate cut -- while leaving policy restrictive -- signaled a softening stance, which many investors interpreted as a buffer against economic slowdown risks. By moving closer to a "neutral" rate, the Fed aimed to support growth while staying cautious on inflation. Fed Chair Jerome Powell's cautious comments confirmed this strategy, emphasizing a careful assessment of economic data over the coming months.

This action immediately bolstered confidence, especially in growth sectors. Lower borrowing costs encourage investment, benefiting sectors like technology and communications, which posted some of the biggest gains on the day. However, financials, notably banks, gave back recent gains as lower rates signal reduced lending profitability.

Trump's return to office promises tax cuts and a reduction in regulations, which appealed to corporations and sparked investor optimism. During his first term, Trump's fiscal policies were seen as growth catalysts, although they also contributed to inflation. This time, markets reacted to expectations that his administration will again push for business-friendly policies, though this approach could create challenges for the Fed if inflation pressures resurface.

In particular, Trump's stance on tariffs and potential for expansive spending on defense and infrastructure could increase inflationary pressures. Should inflation spike, the Fed may feel compelled to reverse its rate cuts, potentially undercutting the market rally in the longer term. Thus, Trump's return has introduced an element of fiscal policy uncertainty that complicates the Fed's efforts to stabilize prices and employment.

So, which was the primary driver of yesterday's rally? The Fed's rate cut seems to have provided the immediate boost, while Trump's return set a hopeful tone. In the short term, the market appears bullish as investors welcome both the Fed's supportive policy and Trump's economic agenda. But longer-term sustainability will depend on how Trump's policies affect inflation and, subsequently, the Fed's policy choices.

The Fed's careful tone suggests a measured approach, with Powell indicating the central bank remains data-driven, reluctant to overreact to any political shifts. For now, the path ahead is promising for risk assets, yet tempered by the potential for inflation and policy recalibration under the new administration.

In conclusion, while Trump's return has infused markets with optimism, the Fed's rate cut provided the immediate stimulus that spurred yesterday's rally. Going forward, Trump's policies could put upward pressure on inflation, leaving the Fed to carefully balance rate cuts against the risk of overheating. Investors should keep a close eye on economic data and Fed communications in the coming months, as they will offer critical insights into the rally's sustainability.