Investors responded by seeking refuge in U.S. government bonds. The yield on the 10-year Treasury note fell to its lowest level since May. Gold and oil prices rose.
SanDisk, AutoNation, Yum Brands and Mattel were among the biggest decliners after reporting earnings or profit forecasts that disappointed investors. Airline and homebuilder stocks also fell sharply.
"What happened with the plane today and things swirling around with what may have actually happened with the plane caused a bit of a sell-off," said JJ Kinahan, chief strategist at TD Ameritrade. "The geopolitical risk is always the first one that people look for because it's the one that changes the fastest. The market always hates uncertainty."
Earlier Thursday, stock futures were down before the market opened as investors pored over the latest earnings and other news.
A pair of government reports pointed to an uneven U.S. recovery. The number of people seeking unemployment benefits fell last week, but home construction fell in June to the slowest pace in nine months, clouding the outlook for the housing recovery.
Homebuilders slumped on the news. M/I Homes led the decline, tumbling $1.38, or 5.8 percent, to $22.37.
"The housing starts numbers were weak, but housing has been incredibly volatile," said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research. "They were definitely disappointing."
Stocks opened lower, but then drifted between small gains and losses, with the Dow inching briefly into positive territory.
That budding comeback stalled at midmorning when news broke of the downed plane.
The CBOE Volatility Index, also known as the "VIX," jumped 33 percent, reflecting investors' uneasiness. The index reflects investors' expectations of future volatility in the stock market.
All told, the Standard & Poor's 500 index fell 23.45 points, or 1.2 percent, to 1,958.12. The Dow slid 161.39 points, or 0.9 percent, to 16,976.81. The Nasdaq composite sank 62.52 points, or 1.4 percent, to 4,363.45.
The yield on the 10-year Treasury note fell to 2.46 percent from 2.53 percent late Wednesday. Benchmark U.S. crude oil for August delivery jumped $1.99 to $103.19 in New York. Gold surged $17.10 to $1,316.90 an ounce.
All 10 sectors in the S&P 500 declined, led by energy stocks.
SanDisk fell the most of the 500 stocks in the index, losing 13.6 percent after the flash memory maker issued a disappointing outlook. The stock fell $14.62 to $93.21.
Sherwin-Williams bucked the trend, ending up as the biggest gainer in the index. It rose $9.22, or 4.6 percent, to $210.95.