In recent months, Wall Street has managed to shrug off turmoil in the Trump administration and the president's failure to get his economic agenda through Congress.
"It's been a bit of a roller coaster this week, with all the rhetoric between the U.S. and North Korea", said Jeff Kravetz, regional investment strategist at U.S. Bank Wealth Management.
"I think the market was looking for a reason to come off here", said Irwin Michael, portfolio manager at ABC Funds.
Outside the political arena, declines in a pair of technology stocks added to the cautious tone on the day.
The Dow Jones industrial average fell 36 points, or 0.2 percent, to 22,048.
The S&P had been down 0.52 percent at its session low.
The CBOE Volatility Index .VIX , 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 S&P 500 is up 9 percent, while the Dow is up 10.6 percent.
Until this week, the equity market had managed to shake off negative news, including previous saber-rattling over North Korea and failures in Washington to pass high-profile bills, such as repealing and replacing Obamacare.
The dollar was further weighed Friday by the soft USA inflation data.
Late Tuesday, President Trump warned North Korea about facing "fire and fury" if North Korea delivers more threats against the U.S.
Overnight, North Korea raised the stakes further by outlining a plan to fire a missile into the water near Guam, the USA territory in the Pacific.
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In overseas trading, stock markets across the Asia-Pacific region saw continued weakness during trading on Friday. It's still the highest it's been since May.
A weaker-than-expected July consumer price data also supported the recovery.
Traders took heart in a measure of USA consumer prices that increased only slightly in July, pointing to benign inflation that could make the Federal Reserve cautious about raising interest rates again this year.
Inflation has risen 1.7 percent over the past 12 months, suggesting that inflation pressures remain well under control. But some economists say the Fed may stand pat for the rest of 2017 unless inflation accelerates in coming months.
"While it appears that Pyongyang's detailed strike plan against Guam has created a sour backdrop to trading, it's worth noting that US/North Korea tensions aren't having quite the same effect on the DAX and CAC", said Spreadex analyst Connor Campbell.
Traders sold off utilities stocks.
Nevsun Resources Ltd offset some of the material group's gains, plunging 16.4 percent to C$2.75 after the company reported disappointing quarterly results. The collapse of sterling after the Brexit vote past year helped boost profits by 16%, the company said, adding that strong United Kingdom operations and acquisitions had also contributed to the rise.
Emerging market stocks lost 1.28 percent.
Strong gains in NY, where the Dow saw repeated record highs up until three day ago, had kept investor optimism high when news of the conflict first broke, Currie said. Brent crude, used to price worldwide oils, rose 20 cents to $52.10 a barrel in London. Natural gas was also flat at $2.98 per 1,000 cubic feet. Copper rose 1 cent to $2.91 a pound.
Nvidia Corp.(NVDA) shares fell 5.3%, even after the chip maker posted upbeat earnings late Thursday. The euro rose to $1.1824 from $1.1774.
The yield on the 10-year Treasury bond fell to 2.2% and is approaching its lowest level of the year. Britain's FTSE 100 was down 1%. Hong Kong's Hang Seng added 0.6 percent.
The UK's deficit in goods and services, the gap between exports and imports, climbed by £2 billion to £4.6 billion between May and June after a drop in exported goods. The Japanese markets were closed for a holiday.