Wall Street closed solidly higher Tuesday after Goldman Sachs kicked off earnings season for the banking sector by blowing expectations out of the water.

Today's Markets

The Dow Jones Industrial Average climbed 27.81 points, or 0.33%, to 8359.49, the Standard & Poor's 500 rose 4.79 points, or 0.53%, to 905.84 and the Nasdaq Composite picked up 6.52 points, or 0.36%, to 1799.73. The consumer-friendly FOX 50 added 2.40 points, or 0.36%, to 670.62.

The mini rally added onto Monday’s 173-point surge, which was sparked by hopes that banking titan Goldman Sachs (GS) would beat the Street. Goldman kept its part of the bargain, reporting significantly better-than-expected results Tuesday morning. Stocks also benefited from a positive report on retail sales and an earnings beat from Johnson & Johnson (JNJ).

Tuesday’s gains were limited somewhat by a new report that revealed inflation on the wholesale level grew by nearly twice as much as expected.

Still, the bulls will take the rally as stocks had been in a recent slump amid economic and earnings jitters. Last week the Dow suffered its first four-week slide early March. 

“Two days ago it looked like the market was really going to roll over. But we had a big day yesterday and a positive follow-through today,” NYSE trader Ted Weisberg of Seaport Securities told FOX Business. “The lightning rod has been the financial sector again. As the banks seem to do better, so does the rest of the market. Now the momentum is obviously on the positive side.”

More than half of the Dow's 30 components closed higher, led by Home Depot (HD) and Intel (INTC), which kicks off earnings season for the tech sector after the closing bell. Travelers (TRV) and AT&T (T) were the biggest percentage losers in the index.

Tech stocks lagged behind as the sector was dragged down by Dell (DELL), which fell sharply after the computer maker said late Monday it sees lower quarterly gross margins, throwing cold water on hopes of a speedy end to the PC slump.

“I think investors continue to have a tug-of-war on their hands between the notion of green shoots… and some structural realities that are quite painful: unemployment is high and likely going higher,” said Matthew Kaufler, portfolio manager at Federated Clover Investment Advisors.

Even though financial stocks like U.S. Bancorp (USB) and Wells Fargo (WFC) gave back some of their huge rally from Monday, it's clear the stellar results from Goldman Sachs helped market sentiment. The former investment bank reported adjusted-earnings of $5.71 per share, blowing away expectations for $3.58 per share. 

Buoyed by easing credit markets, a rebound in stocks and a lack of competition, Goldman's revenue came in at $13.8 billion, well above estimates for $11.2 billion. Yet Goldman's shares, which surged more than 5% on Monday, ended flat.

Mixed Economic Picture

The markets also received a lift from the government's retail sales report, which showed sales grew 0.6% in June, topping estimates for a 0.5% increase and improving on May's 0.5% growth. In response to the data, all 28 stocks in the S&P 500 Retailing Index closed flat or higher, led by Tiffany (TIF) and Sears (SHLD). 

On the other hand, Wall Street was briefly spooked by a new report from the Commerce Department that showed wholesale inflation jumped 1.8% in June, nearly twice as much as the 1% increase economists had predicted. Excluding volatile food and energy prices, wholesale inflation rose 0..5%, well above the unchanged figure the Street had been looking for. 

But most traders shrugged off the report, saying it's too early to tell if it is more than an oil-fueled aberration. But if the rise in wholesale inflation trickles down to the consumer, it could pose a threat to a potential second-half recovery for the still-weak U.S. economy.

“All the inflation data has been well contained. This is the first time we’ve seen inflation numbers that are a little bit worrisome,” said Ryan Detrick, equity analyst at Schaeffer’s Investment Research. “It was a little bit of a dose of reality.”

Energy stocks like BP (BP) and Schlumberger (SLB) were among the strongest stocks Tuesday even as crude oil tumbled for the third-straight day and ninth time of the last 10. Despite the slump, the commodity does appear to be stabilizing, losing just 1.47% over the last three sessions. Crude fell 17 cents a barrel, or 0.28%, to $59.52.

Corporate Movers

CIT Group (CIT) surged almost 20% after The Wall Street Journal reported the commercial lender is in advanced talks with the U.S. about a rescue. While the Federal Reserve and Treasury Department support giving CIT Group access to a debt guarantee program, the FDIC has been more reluctant, the paper reported.

Johnson & Johnson (JNJ) beat the Street with second-quarter earnings of $1.15 a share on sales of $15.24 billion. J&J also reaffirmed its 2009 earnings guidance. 

McGraw-Hill’s (MHP) BusinessWeek could fetch just $1 due to the magazine’s heavy losses and the media recession, the Financial Times reported. The publisher reportedly hired boutique investment bank Evercore to shop the magazine. 

Sun Microsystems (JAVA) warned it will report a net loss and its quarterly revenue will likely miss the Street's view. The computer server maker, which is being acquired by Oracle (ORCL), said it sees quarterly revenue in the $2.58 billion to $2.68 billion range, well below analysts' expectations for $3.06 billion. 

Blue Nile (NILE) soared more than 11% after the online jewelry retailer was upgraded to "buy" from "hold" by an analyst at Citigroup. The analyst cited reasonable expectations for second-quarter results and improving fundamentals, including gross margins. 

CSX (CSX) led a rally in the railroad sector after the company beat the Street late Monday with an adjusted-profit of 72 cents per share amid a 27% decline in operating expenses. The better-than-expected results came even after the No. 3 U.S. railroad company saw its revenue tumble 24%.

New York Times Co. (NYT) unveiled a $45 million deal to sell WQXR-FM, its New York City-based classical music radio station, to subsidiaries of Univision Radio and WNYC Radio.

Novellus (NVLS) ticked higher a day after the semiconductor equipment make reported a worse-than-expected adjusted- loss of 41 cents per share. Countering the worse-than-expected results, Novellus CEO Richard Hill said he expects gross margins to improve and revenue of $150 million to $180 million in the current quarter.

Global Markets

European stocks closed in the green, led by Germany's DAX, which climbed 1.26% to 4781.69. London's FTSE 100 closed up 0.85% to 4237.68 and France's CAC 40 advanced 0.98% to 3081.87.

Asian markets surged on the heels of Wall Street's rally Monday. Japan's Nikkei 225 jumped 2.34% to 9261.81 and Hong Kong's Hang Seng soared 3.66% to 17885.73.