The Vix, a measure of how much volatility investors expect in stocks, jumped to its highest level since May after North Korea indicated a plan to launch ballistic missiles toward a major USA military hub in the Pacific.
The S&P 500 lost 5.99 points, or 0.24 percent, to close at 2,474.92 and the Nasdaq Composite dropped 13.31 points, or 0.21 percent, to 6,370.46. The Nasdaq composite lost 18 points, or 0.3 percent, to 6,352.
Biotechnology stocks are turning in some of the market's worst performances in morning trading, resulting in a 1.6 percent drop by the NYSE Arca Biotechnology Index.
The S&P hasn't moved more than 0.5 percent in one day since July and has fallen more than 1 percent only twice this year.
Twenty-First Century Fox Inc was down 2.65 percent following quarterly revenue that fell short of expectations.
For the week, the index was on course to fall 2.7% and that would mark the worst week since early November 2016 (http://www.marketwatch.com/story/european-stocks-face-worst-week-in-9-months-rattled-by-political-risk-2016-11-04), just before the USA presidential election. Travel-review website operator TripAdvisor was down 2.7 percent.
The major averages have slid firmly into negative territory, with the Dow and the S&P 500 pulling back further off Monday's record closing highs. The FTSE 100 index of leading British shares declined 0.6 percent.
Wall Street's fear gauge-the CBOE Volatility Index or the VIX-jumped 36 percent to 15.06.
Korea's Kospi dropped 1.7%, cementing a weekly loss of 3.2%.
The December gold contract was up US$12.40 to US$1,285.40 an ounce.
Politics lifted US defense stocks.
Prices for bonds and gold headed higher.
"In the event that war should break out, and that leads to an acceptance of further loose monetary and fiscal policy in the United States, we would expect a falling U.S. dollar real yield environment, giving renewed, and sustainable, impetus to monetary metals prices. That reset is being triggered by North Korea geopolitical concern and stretched valuations", said Peter Kenny, senior market strategist at Global Markets Advisory Group, New York.
On the currency markets, the pound fell 0.2% against the dollar to $1.2976 and slipped 0.05% against the euro at 1.1055 euros.
In other energy futures trading, wholesale gasoline rose 1 cent to $1.61 a gallon, while heating oil was little changed at $1.63 a gallon.
USA crude fell 0.41 percent to $48.39 per barrel and Brent was last at $51.68, down 0.42 percent on the day.
The September crude contract was up 20 cents to US$49.76 per barrel and the September natural gas contract was up seven cents to US$2.95 per mmBTU.