The Dow tumbled 185 points on Friday after a Federal Reserve official said the central bank could start easing off its stimulus polices in October and as investors hesitated to jump in ahead of the weekend. Still, all three major averages finished in the black for the third-straight week.
With the day's losses, the blue-chip index reversed all of its gains since the Fed announcement on Wednesday that it would continue its $85 billion monthly purchase of bonds.
"We initially had the kneejerk reaction after the Fed announcement, and now the psychology's shifted to 'what's next'—we have a very busy economic calendar next week and now that we're data-dependent, that's going to be important," said Art Hogan, managing director at Lazard Capital Markets.
Meanwhile, BlackBerry shares plunged nearly 20 percent on the Nasdaq after the troubled smartphone maker announced preliminary second-quarter results that disappointed current estimates. In addition, the company said it will slash approximately 4,500 jobs, or nearly 40 percent of its workforce, as part of its massive restructuring plan.
The Dow Jones Industrial Average plunged 185 points, dragged by Caterpillar and Microsoft. The blue-chip index set an all-time high on Wednesday and is still posted a gain for the third-straight week.
After the market close, Dow components Alcoa, Bank of America and Hewlett-Packard were to be replaced by Goldman Sachs, Nike and Visa. The change marks the first new names for the index in nearly two years.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended above 13.
All key S&P sectors were in negative territory, dragged by utilities and telecoms.
Volatility was amplified as Friday also marked the "quadruple witching," when stock index futures, stock index options, stock options and single stock futures all expire. This event takes place four times a year on the third Friday of March, June, September and December.
Stocks opened lower after St. Louis Federal Reserve Bank President James Bullard said the central bank could start winding down its $85-billion monthly bond purchase program during its October meeting.
"This was a close decision here in September," Bullard said in an interview with Bloomberg, emphasizing the role that economic data has played and will continue to play in Fed decisions.
The dollar rose to a one-week high against the yen following his comments.
Separately, Bullard said low readings on inflation means that the Fed can be patient on deciding when to scale back its pace of asset purchases.
"While I expect inflation to rise during the coming quarters, I want to see evidence of such an increase before endorsing less accommodative policy action by the FOMC," Bullard said at the New York Association for Business Economics.
Kansas City Fed President Esther George, the lone dissenter on the Fed's Open Market Committee, said the Fed created confusion in the market and it risks credibility by delaying the reduction of its bond buying program.
(Read more: No Fed taper this year, says former Bush advisor)
Lazard Capital's Hogan also said two "hurdles" still remain for investors in September—the German election and Washington's ongoing budget debate.
"Those two could prove to be formidable and not bullish for stocks if they move in the wrong direction," he explained. "So as we head into the weekend, investors are taking money off the table."
Meanwhile, the U.S. House of Representatives passed a bill that would keep the government open to Dec. 15 and also eliminate funding for President Obama's health care program.
(Read more: Stocks are about to plunge, Wells Fargo pro warns)
In Asia, markets in China, Hong Kong and South Korea were shut for public holidays. Indian stocks led those markets that were open lower, after the Reserve Bank of India unexpectedly raised benchmark rates. Japan's Nikkei index closed just below the flatline and Australia's S&P ASX 200 fell off the previous session's five-year high.