The Dow shed about a third of a percent, the S&P 500 dipped more than one-tenth and the Nasdaq lost a quarter of a percent.

Stocks had rallied over the past two sessions on growing confidence that a deal to raise the $31.4 trillion debt limit could be reached, with the S&P climbing more than 2%.

With the debt talks in limbo, Christian Ledoux, Director of Investments at CAPTRUST, says he's fielding calls from investors concerned about where to put their money.

"We're investing conservatively on a relative basis. We invest in companies that are not needing capital, that are free cash-flow positive and can weather storms. A lot of the big tech companies are exemplary companies in that regard. We have great exposure there. And then you can get into trends like AI, where growth will persist regardless of what happens in the economy in general. So there are ways to invest around it, you just need to make sure you're not too tied to companies that are either dependent on the government spending or are dependent on the economic cycle."

Meanwhile, Federal Reserve Chair Jerome Powell spoke at a monetary policy panel, saying it is still unclear whether the Fed will continue to hike interest rates given the recent turmoil in the banking sector.

Shares of the KBW Regional Banking index fell more than 2% Friday, but are still up more than 6% on the week to snap a three-week streak of declines.

And Morgan Stanley lost over two-and-a-half percent after CEO James Gorman announced he would step down from the role in the next 12 months.

Finally, Foot Locker plummeted more than 27% and suffered its biggest daily percentage drop since Feb. 25, 2022 after the footwear retailer cut its annual sales and profit forecasts.

The warning also dragged down shares of Nike and Under Armour.