Solid earnings from Walmart and better-than-expected inflation numbers from the Bureau of Labor Statistics fueled another Wall Street rally on Tuesday.

Before the market opening, the retail giant reported solid financial results for the third quarter of the fiscal year 2023. Total revenue came at $152.8 billion, up 8.7% year-over-year, driven by strengths in Walmart U.S., Sam's Club U.S., Flipkart, and Walmex. In addition, U.S. sales rose 8.2% and 17.4% on a two-year stack, while online sales surged 16% and 24% on a two-year stack.

Walmart's financial results that beat analysts' estimates confirm that American consumers returned to brick-and-mortar stores. They helped shake off Wall Street's fears that inflation and deflation would hurt the performance of the nation's retailers. Thus, the big rally in the retail sector shares ahead of the market opening.

At 8:30 a.m. ET, Wall Street got more good news. The October Producer Price Index — a measure of the average change over time in the selling prices received by domestic producers for their products — rose 0.2 % over the previous month, and 8% on an annual basis.

The closely followed inflation metric came below the September number of 8.4% and below the consensus analyst estimate of 8.3%. Moreover, it's the lowest reading in the last 12 months.

The easing of wholesale inflation follows another report released on Thursday showing that the Consumer Price Index — a gauge of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services — eased, too.

The two inflation reports confirm that the old villain of the economy is on the retreat, fueling speculation that the Federal Reserve will taper the pace of interest rate hikes and eventually turn neutral.

Once again, the prospects of a less hawkish Fed fueled a rally in the debt market, driving the benchmark 10-year Treasury bond yields towards the 3.80% mark.

Lower bond yields helped fuel a rally in interest rate-sensitive sectors like homebuilders, automobiles, and financial companies.

Moreover, lower yields helped push the dollar lower, with the DXY Currency Index falling to 106.10, well below the 113 mark it was trading at a couple of weeks ago.

The weaker dollar added another tailwind behind large technology shares with significant exposure in overseas markets.

By 11:20 a.m. ET, the Dow, which includes Walmart, was up 0.80%, S&P 500 was up 1.42%, and the tech-heavy Nasdaq was up 1.98%.

Still, traders and investors should be very cautious in chasing the renewed Wall Street rally, for a couple of reasons. One, the previous rally has already discounted the easing of inflation. Two, inflation remains elevated, well above the Fed's 2% target. And three, major market indexes may soon encounter technical resistance as they reach critical levels.