It's interesting because I'd expect a certain number of people to be cashing in their 401ks and IRAs, which surely would have _some_ effect on the stock market, but it seems that as well as the recent political situation have had zero effect.
If that's happening at scale, then those 401k accounts are getting massive liabilities stacked up against them.. which falls apart if their value goes down.
Nothing stops your friend from selling everything and leaving it as cash or some non-stock instrument in the account.
So if there's still lots of cash coming in every month from new payroll deductions, there might be no need for the fund to sell stocks to pay out a loan. They'd just buy fewer stocks that month.
They'd only have to sell stocks if the total cash going out (loans, plus distributions to retirees) exceeded the total cash coming in (payroll deductions).