The Dow Jones Industrial Average, which had been steadily hitting records, posted its biggest decline since May on Thursday, while the CBOE Volatility Index, known as Wall Street's "fear gauge", rose to its highest level of the year.
Global markets have lost almost US$1 trillion since U.S. president Donald Trump said on Tuesday that North Korea "will be met with fire and fury like the world has never seen" and then dialed up his warning further on Thursday by saying he wasn't tough enough this week. "If the answer is 'yes, ' then you better get defensive".
The escalation provided an excuse for a selloff many investors consider overdue, some investors and analysts said.
The S&P 500 has hadn't a single day move of more than 0.5 percent since mid-July and has fallen more than 1 percent only twice this year.
Most large-cap stocks fell across the board.
USA stocks deepened their losses following the latest Trump comments, and the S&P 500 volatility index, known unofficially as the "fear index", rose decisively.
Shares of Macy's tumbled 8.3 percent and Kohl's 7.3 percent after the department store operators reported a drop in quarterly same-store sales that stoked concerns that their turnaround may still be a long way off.
Blue Apron shares hit a record low at US$5.03 after the meal-kit delivery service provider reported a bigger-than-expected loss in its first quarterly report as a public company.
In the eurozone, the Paris CAC 40 dropped nearly 0.7 per cent to 5,081.92 points compared with the closing level on Thursday.
Overall it has been a strong stretch for corporate profits. Core prices had also been expected to climb by 0.2 percent.
However, Federal Reserve Bank of New York President William Dudley suggested on Thursday that the central bank was on track to raise interest rates once more as he expects sluggish inflation to rise over the next several months.
For the week, the benchmark slipped 2.6%.
Rising costs for housing, medical care and food helped push the Consumer Price Index (CPI) up 0.1 percent in July, seasonally adjusted, after no change in June and a 0.1 decrease in May, the US Labor Department said.
Friday's report was the latest in a string of lackluster inflation readings, which have surprised many investors who had entered the year betting on an upsurge in economic growth and inflation.
Federal Reserve Bank of NY president William Dudley is set to speak later in the day and his comments will be parsed for clues regarding the future pace of interest rate hikes.