Minutes released Wednesday of the central bank's most recent meeting revealed Fed officials were concerned about "recent decreases in oil prices and the possibility of adverse spillovers from slower economic growth in China," a detail which helped spark the selling.
At the same time, North Korea put its troops on war footing Friday after South Korea rejected an ultimatum to halt anti-Pyongyang broadcasts. The prospect of war, or signs of more global worries, could further dampen U.S. stocks in the week ahead.
The slowdown in China and other emerging markets such as Brazil is hurting commodity-related companies, but it is not enough to affect either 2015 or 2016 earnings estimates for the S&P 500 as a whole, said Gina Martin Adams, equity strategist at Wells Fargo. Second-quarter earnings rose 0.1 percent from a year earlier, an improvement from the expected decline of 3.4 percent.
Low energy costs should benefit consumer discretionary companies, which Martin Adams expects to grow earnings by 12 percent for the year, up from her previous forecast of 8 percent.
Mutual fund managers are also making bets on U.S. companies that get the majority of their revenues from the domestic market. The average large-cap fund is overweight in U.S.-focused companies, including JPMorgan Chase & Co, railroad Union Pacific Corp, American Express Co, and Comcast Corp, according to research by Goldman Sachs.
Martin Adams estimates the S&P 500 will reach 2,222 over the next 12 months, an 11 percent gain from the 1,997 the index reached on midday Friday, after commodity prices bottom and earnings improve.
"The direction of the market is ultimately higher," she said.