Dow plummets 665 points, capping worst week in 2 years

"The reaction in the bond market is due to the rise in average hourly earnings," said James Ragan, director of individual investor group research at D.A. Davidson. "I think the market is now thinking of the possibility that the Fed could raise rates four times this year rather than three."

The Federal Reserve has forecast three rate hikes for 2018.

Bank stocks fell as the yield curve widened. The SPDR S&P Bank exchange-traded fund, which tracks bank stocks, dropped 1.2 percent. Banks typically benefit from higher interest rates.

This has been a volatile week for U.S. stocks. The Cboe Volatility index, widely considered the best fear gauge in the market, rose from 11.08 this week to 17.31.

The Dow, S&P 500 and Nasdaq snapped four-week winning streaks. The indexes also posted their worst weekly performance in two years.

"We've been expecting a pullback for a while, said Gene Goldman, head of research at Cetera Financial. "Yes, earnings are strong and the economy is doing well, but markets just don't go straight up."

Wall Street also looked to the release of key corporate earnings. Exxon Mobil reported weaker-than-expected earnings on Friday, sending its stock lower.

Tech giant Apple reported better-than-expected quarterly results. But the stock fell 4.4 percent after the company said it expects profit margins of 38 percent to 38.5 percent, tighter than the expected 38.9 percent. Apple also reported lighter-than-expected iPhone sales for its previous quarter.

Google-parent Alphabet also reported quarterly results, with earnings per share missing expectations. The company's stock dropped 5.3 percent on the back of the report.

Amazon, meanwhile, surged to an all-time high on the back of its earnings report. The e-commerce giant said its Amazon Web Services sales — a key component for the company — hit $5.11 billion. Analysts polled by FactSet expected AWS revenue of $4.97 billion.

About halfway through the earnings season, most companies have posted upside surprises. Of the S&P 500 companies that have reported as of Friday morning, 78 percent have beaten bottom-line expectations, while 80 percent have surpassed sales estimates, according to Thomson Reuters I/B/E/S.

Art Cashin, director of floor operations at UBS, said the release of the much-anticipated memo from House Intelligence Committee Chairman Devin Nunes on the Russia probe remained in the background as stocks sold off Friday.

"You're going into the weekend. That's inhibiting buyers more than creating sellers," Cashin said.

—CNBC's Patti Domm contributed to this report.