We are in an all out panic mode. Investors are gripped with fear and they want out at any price or some of them are being forced out due to margin calls.
It is really hard to rationalize this kind of selling, but one big factor in play today was increase in Credit Default Swaps rates for French debt. This is an early sign of the European crisis spreading to the healthier parts of Europe. There are fears about the health of the European banks. We might be re-living the financial crisis of 2008 but the epicenter will be Europe instead of the US.
I am reasonably sure the the S&P downgrade was not the cause of this sell off as money was rushing into US debt and 10 year interest rates dropped dramatically to 2.34%.