The Dow Jones Industrial Average fell 36.64 points or 0.17 per cent to end at 22,048.7, the S&P 500 lost 0.9 point or 0.04 per cent to 2,474.02 and the Nasdaq Composite dropped 18.13 points or 0.28 per cent to 6,352.33.
Wall Street stocks dropped early Thursday after North Korea announced a plan to send missiles towards Guam, raising the stakes of a nuclear standoff with the United States.
"From a geopolitical perspective, we understand why the escalation in tensions will have shaken some of the complacency out of investors", said Eric Wiegand, senior portfolio manager at U.S. Bank Private Client Wealth Management.
The greenback also came under pressure after New York Federal Reserve President William Dudley cautioned it would "take some time" for United States inflation to reach the bank's two percent target. "I do think we could see markets pull back between 1 and 5 percent".
However, an Associated Press report that the US and North Korea have been engaged in back channel talks (https://apnews.com/686ac7c761694b28b67793a1d8297145?link=mktw) for several months even as they exchange incendiary threats helped to soothe some of the jitters.
More than 430 stocks from all USA exchanges hit their lowest levels in 52 weeks or more on Thursday, the most for any session since mid-November right after Trump was elected.
Still, the S&P 500 is on track to post its biggest weekly loss in about nine months. The consumer discretionary index was one of its biggest losers with a 0.47 per cent drop.More news: ESports Could Be Coming to the 2024 Olympics
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The CBOE Volatility Index, a barometer of expected near-term stock market volatility, closed at its highest since the US presidential election on Thursday, but was down 1.22 points at 14.82 points on Friday.
The yield on the benchmark 10-year Treasury note settled at 2.191%, its lowest close since June 26, compared with 2.211% Thursday and 2.269% last Friday. Consumer-focused companies and technology stocks slumped. And Blue Apron shares dipped after its first earnings report as a public company. Shares of Macy's lost 10% and Kohl's fell 5.8%. Some say expectations for its server-chip business were just too high (http://www.marketwatch.com/story/nvidia-stock-could-pause-as-server-growth-slows-down-2017-08-10).
Most large-cap stocks fell across the board.
In contrast to the USA market, global equities remained weak. And that helped limit the losses in Europe. Titled "Reckless game over the Korean Peninsula runs risk of real war", the editorial suggested China will stay neutral if North Korea strikes first, but will intervene if the U.S.is the first mover.
USA equities steepened their losses late in the session after President Donald Trump said his earlier warnings to North Korea may not have been tough enough.
The Vix, a measure of how much volatility investors expect in stocks, jumped 34.8 per cent, the biggest increase since May.
Investors instead turned to safe-haven assets such as gold, pushing it to a two-month high, and the Japanese yen rose.