CBOE Global Markets’ Mandy Xu warns the stock market is underpricing tariff risks — even after Monday’s sharp sell-off. Xu contends the bond market has been more sensitive to economic uncertainty than stocks over the past few months. But now, that gap may be starting to close. “There’s scope for it [volatility] to go even higher because the way the options market is still pricing tariffs is as a stock-specific catalyst, not as a macro catalyst,” the firm’s head of derivatives market intelligence said on CNBC’s ” Fast Money .” According to Xu, the stock market is still trying to pick out the winners and losers of President Donald Trump ‘s tariff policy. The president said that the U.S. would impose 25% duties on imports from Canada and Mexico on Tuesday. He also said he would slap an additional 10% tariff on China goods. “But what the bond market is signaling is that we could be in for weaker growth — potentially recession. And, that as we know, is bad for all stocks,” said Xu. On Monday, the CBOE Volatility Index surged 16% to 22.78. It came as the S & P 500 turned negative for the year. The Nasdaq Composite was more than 9% off its high, nearing correction territory. .VIX 1D mountain Volatility surged on Monday. Yet, Xu finds the market doesn’t seem alarmed. “We were seeing elevated hedging activity all throughout the last couple of months going into this. So, I think that’s partly the reason why we haven’t seen panic,” said Xu, who added that S & P 500 zero days-to-expiration options volume surged to a record last month . It’s a way to manage risks in this uncertain environment, according to Xu. “Whenever a headline comes through, you don’t know how long it’s going to last, right? Are the tariffs going to get walked back the next day? The next month,” she noted. “I think that’s why we’re seeing just record volumes. Not just in the S & P options, but across the board.” Xu shares the bond market’s economic growth concerns — including the tariff impact paired with government layoffs. She worries it could spark a demand shock. “This is happening at the same time we’re seeing large-scale reductions in the federal workforce. What does that mean in terms of consumer spending? That is going to be key to watch.” said Xu. The U.S. Bureau of Labor Statistics will release the February employment report this Friday. Sign up for the Spotlight newsletter, a hand curated collection of video clips selected by CNBC’s top editors and producers. Your daily recap of top business highlights and leading stories. Disclaimer