The last time the S&P closed down more than 1 percent was May 17.
Stocks in Asia declined with USA equity index futures and the South Korean currency tumbled as investors took a risk-off approach after the U.S. and North Korea exchanged threats amid escalating tensions between the two nations.
Stocks ended with slight losses, stopping the Dow's streak of nine consecutive record high closes, as the major indexes traded listlessly within a narrow range throughout the day.
At 12:36 p.m. ET (1636 GMT), the Dow Jones Industrial Average was down 158.98 points, or 0.72 percent, at 21,889.72 and the S&P 500 was down 27.37 points, or 1.11 percent, at 2,446.65.
Investors bought safe-haven assets such as gold, helping the precious metal touch a two-month high, and the Japanese Yen rose.
On average, the S&P 500 falls 5% or more every 10 weeks and the index falls 10% every 33 weeks, according to data analyzed by AllianceBernstein going back to 1928.
"As a portfolio manager, you say, 'Do I think we'll get a war out of this?'" said Torsten Slok, chief worldwide economist at Deutsche Bank, referring to the back and forth between North Korea and President Donald Trump.
Safe-haven assets such as gold and the Swiss franc were again in favor.
Macy's shares closed down 10.2 percent and Kohl's fell nearly 6 percent as the companies continued to report a drop in quarterly same-store sales, stoking concerns that their turnarounds may still be a long way off.
Shares of Kohl's were down 8.4 percent, while Macy's fell 4 percent after the department store operators reported a fall in sales.
Retailers' results are being keenly watched by investors to gauge the companies' strategy to counter No. 1 online retailer Amazon.com's growth.
Ralph Lauren Corp. shares gained $10.38, or 13.3 percent, to $88.53, while peer-to-peer loan company LendingClub Corp. added 99 cents, or 18.1 percent, to $6.45.
"We predicted KOSPI's July support level to be 2,300, but there is a possibility that it will fall below the mark in a couple of months", he said. "Risk aversion is still very much a concern for markets", said Shaun Osborne, chief currency strategist, at Scotiabank in Toronto. Hong Kong's Hang Seng Index fell 1.22%.
Data showed USA producer prices unexpectedly fell in July, recording their biggest drop in almost a year, while another set showed the number of Americans filing for unemployment benefits unexpectedly rose last week.
Still, the S&P and the Dow were on track to post their biggest weekly loss in about five months and the Nasdaq on course to post its biggest weekly fall in about six weeks.
Federal funds futures suggested the chance of rate hike in December fell to 40 percent from 42 percent shortly before the release of the data.
The 30-year bond last rose 5/32 in price to yield 2.8107 per cent, from 2.818 per cent late on Wednesday.