On Thursday, the Dow Jones index dropped 0.9 percent, or 204,69 points, to 21 844,01.
North Korea has made threats against the US for years, but a recent military intelligence analysis found the country has developed the ability to build a small nuclear warhead that can reach the United States.
"What has changed this time is that the scary threats and war of words between the U.S. and North Korea have intensified to the point that markets can't ignore it", said Shane Oliver, head of investment strategy at AMP Capital in Sydney, as quoted by Reuters.
Most large-cap stocks fell across the board.
Outside the political arena, declines in a pair of technology stocks added to the cautious tone on the day.
In his latest warning to North Korea, U.S. President Donald Trump said on Friday military solutions were "fully in place" and referred to American weapons as being "locked and loaded" should the nuclear-armed nation act "unwisely".
Retailers were all under pressure after Macy's and Kohl's each reported lower second-quarter sales, reviving worries about consumer discretionary stocks.More news: Redskins OLB Trent Murphy tears ACL
Gold prices posted strong weekly gains (http://www.marketwatch.com/story/gold-heads-for-strong-weekly-gain-as-stock-market-exit-persists-2017-08-11) thanks to safe-haven demand. Biotech companies Celgene and Amgen lost 3.8 percent and 2.6 percent, respectively.
Nvidia's quarterly revenue in its data center and automotive businesses missed estimates, dragging the chipmaker's shares down 5.43 percent.
Several financial sector companies also helped pull down the market. Dillard's slumped 15.5 percent after the chain booked a loss for the second quarter as increased inventory led to big discounts. Kohl's also declined, sliding $3.62, or 8.6 percent, to $38.31. Top automaker Hyundai Motor fell 2.07 percent to 142,000 won.
Economic data showed U.S. producer prices unexpectedly fell in July, recording their biggest drop in almost a year, while separate figures showed the number of Americans filing for unemployment benefits unexpectedly rose last week.
On the currency front, the US dollar is trading at 108.82 yen compared to the 109.20 yen it fetched at the close of NY trading on Thursday. Brent crude, used to price global oils, added 21 cents to $52.91.
The dollar slipped to 109.26 yen from 109.85 late Wednesday. The major index futures are now pointing to a modestly higher open for the markets, with the Dow futures up by 21 points. The euro rose to $1.1774 from $1.1752.
The Standard & Poor's 500 index fell 24 points, or 0.9 percent, to 2,450. South Korea's Kospi fell 0.5 percent.