The Dow dropped about 1%, the S&P 500 shed more than 1.3% and the Nasdaq plunged over 1.6%.

Mounting tensions in the Middle East stoked risk aversion. Safe-haven gold hit its highest in more than two months while the .VIX volatility index, Wall Street's fear gauge, rose.

Carol Schleif, Chief Investment Officer at BMO Family Office, says that stocks have mostly shrugged off geopolitical events - until the deadly overnight blast at a Gaza hospital heightened fears the conflict was spreading.

"We do think that you're seeing a bit more geopolitical concern creep in. It's been interesting because as we've been going around the country in the last 6 to 12 months, never in my career have I seen geopolitical concerns at the top of everybody's list. [FLASH] And I think there's that fear. You're seeing it in the energy markets today, you're seeing through gold as a safe-haven status...."

Treasury yields edged higher after data showing U.S. single-family homebuilding rebounded in September, supporting the view that the Federal Reserve will keep interest rates higher for longer.

On the earnings front, United Airlines shares plunged more than 9.5% after the company forecast weaker fourth-quarter profit due to higher costs.

Morgan Stanley shed more than 6.5% after third-quarter profit showed a hit from lethargic dealmaking.

Tesla, reporting after the close, said third-quarter gross margin shrank from a year earlier, slightly missing Wall Street estimates. Shares closed down nearly 5% but were up in after-hours trading as the EV maker stuck to its annual production target of 1.8 million vehicles.

And Netflix - which raised prices in the U.S., Britain and France on Wednesday - said it picked up nearly 9 million new global customers, surpassing Wall Street's estimate of 6 million... sending its shares soaring more than 13% in after-hours trading.