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Stock Drop an Overreaction: Morgan Stanley CEO

Morgan Stanley Chairman and CEO James Gorman told CNBC on Friday the recent stock drop on Federal Reserve taper talk is an overreaction and investors shouldn't let market fear take over.

"I suspect that over the next few days we see a little more stability in equities," he said in a "Squawk Box" interview.

(Read More: Tepper Likes the Taper, Says Stocks Are Strong)

The recovery in the U.S. economy is for real, and Fed Chairman Ben Bernanke's comments about a possible scale back in quantitative easing later this year is an acknowledgement of that, he said.

"Chairman Bernanke, I think, has done a tremendous job and is weening the country off as we're seeing economic recovery," Gorman said. "That the market would be skittish during this transition, given what we've been through the last five or six years, is not surprising to me."

(Read More: Buy-and-Hold Billionaire: Turbulence Won't Last)

"This is not a time when fear should take over," he continued. "This is the last in a series of hurdles that the markets have had to go through as they work their way back to a more normal environment."

Further bolstering Morgan Stanley's wealth management business, Gorman said the company has received all regulatory approvals to acquire the remaining 35 percent interest in Morgan Stanley Smith Barney Holdings from Citigroup.

"This is something we've been working on since the ashes of the financial crisis in late 2008," he said. "This combination is both transformative and, at the same, time brings tremendous ability to our institution."

By CNBC's Matthew J. Belvedere. Follow him on Twitter @Matt_SquawkCNBC.

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