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The Dow Jones took a triple-digit dive on Thursday afternoon as escalating worries about the Trump administration's ability to push through its agenda rattled investors. The Dow closed at 21,750, its biggest drop in three months and the second-worst day of the year.

Markets also remained on edge after a terror attack in the center of Barcelona killed at least 13 people and wounded more than 50.

Underscoring both events, the VIX "fear" index that gauges volatility on Wall Street spiked to 25 percent on Thursday afternoon.

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In addition, stocks were rattled earlier in the day following speculation of White House Economic Adviser Gary Cohn's possible departure.

A White House official said Cohn "intends to remain in his position as NEC director ... nothing's changed."

"The concern would be if Gary Cohn would decide that if he needs to take a safe step that a lot of CEOs did, it will be very difficult to move forward with pro-growth tax reforms," said Art Hogan, chief market strategist at Wunderlich Securities in New York.

With valuation levels considered high, investors may be more prone to sell, said Stephen Massocca, senior vice president, Wedbush Securities in San Francisco.

"When you're at these valuations levels in a lot of these names, it doesn't take much. Anything can be an excuse," he said.

Investors also appeared to be losing faith in the administration's ability to move forward on its agenda.

"Continued problems with Republican leadership, inability to get anything done, and this latest wedge being driven between the president and Congress. Not helpful," he said.

Investors have also been assessing minutes from the Federal Reserve's July meeting that showed growing concerns over weak inflation, muddying the path of interest rate hikes. Weak inflation has spurred concerns that the Fed may have to cool its monetary tightening pace even though the economy is growing moderately and the unemployment rate is at a 16-year low.