When you take out 401K loan, the plan sells equivalent amount of shares and gives you the cash. So it's still causing market sell off. As you pay it back the shares are bought again.
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).