So far it's just been a war of words between the USA and North Korea so the rally has just been a normal reaction to the possibility of a geopolitical event.
Traders took heart in a measure of US 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.
The Dow Jones Industrial Average fell 162.59 points, or 0.74 percent, to 21,886.11, the S&P 500 lost 30.54 points, or 1.23 percent, to 2,443.48 and the Nasdaq Composite dropped 116.67 points, or 1.84 percent, to 6,235.66.
Tokyo's Nikkei 225 share index closed down 1.3 per cent at its lowest since June 1 as the strong yen hit exporters, while South Korea's KOSPI index fell 1.1 per cent to seven-week lows.
The S&P 500 lost 9.74 points, or 0.39 per cent, to 2,465.18.
Wall Street's widely followed measure of market anxiety, the CBOE Volatility index, was up 0.79 points at 16.77 on Friday, its highest since November.
"We've seen this play before, and it usually plays out where it just goes back to the status quo", Jacobsen said. "So why buy risk assets (such as equities or credit) when the thematic at hand isn't going to resolve itself in the immediate short-term?"
Pyongyang responded to provocations from President Trump and said it would consider using missiles against USA military bases in Guam. The three major indexes closed out the week in positive territory following yesterday's lows.
The Nasdaq Composite, meanwhile, was facing its worst week since the one ended December 2, which logged a loss of just over 2%. Those are the indexes' worst weekly losses since the week ended March 24.
"We're not very oversold yet so the market still has more downside left to it", said Robert Pavlik, chief market strategist at Boston Private Wealth in NY.
"U.S. tech is a case in point".
Investors said the week's swings were as much a result of earnings as geopolitics. Both the core and headline rates are expected to have risen by 0.2 percent during July.
Such an outcome would normally boost the US dollar, Spivak said in a note.
Shares Snap fell 1.94, or 14%, to 11.83 after the Snapchat parent reported earnings late Thursday that missed analyst forecasts. Nvidia (NVDA) had blowout numbers, but priced-for-perfection shares fell. 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). Despite the news, VNTV is trading down 1.6% in pre-market trading.
Geopolitical risks were expected to remain a key theme for the global markets in the near term, as North Korea celebrates Liberation Day on Tuesday to mark the end of Japanese rule.
Gold prices and shares of mining companies jumped on Wednesday amid heightened turmoil surrounding the US and North Korea.
Gold hit its highest level in nearly two months after Trump added to the geopolitical anxiety by boasting of the strength of the US nuclear arsenal.